[Federal Register Volume 77, Number 250 (Monday, December 31, 2012)]
[Proposed Rules]
[Pages 77188-77215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-31170]
[[Page 77187]]
Vol. 77
Monday,
No. 250
December 31, 2012
Part II
Bureau of Consumer Financial Protection
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12 CFR Part 1005
Electronic Fund Transfers (Regulation E); Proposed Rule
Federal Register / Vol. 77 , No. 250 / Monday, December 31, 2012 /
Proposed Rules
[[Page 77188]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1005
[Docket No. CFPB-2012-0050]
RIN 3170-AA33
Electronic Fund Transfers (Regulation E)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Proposed rule; request for public comment.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
proposing to amend subpart B of Regulation E, which implements the
Electronic Fund Transfer Act, and the official interpretation to the
regulation. The proposal would refine a final rule issued by the Bureau
earlier in 2012 that implements section 1073 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act regarding remittance
transfers. The proposal addresses three narrow issues. First, the
proposal would provide additional flexibility regarding the disclosure
of foreign taxes, as well as fees imposed by a designated recipient's
institution for receiving a remittance transfer in an account. Second,
the proposal would limit a remittance transfer provider's obligation to
disclose foreign taxes to those imposed by a country's central
government. Third, the proposal would revise the error resolution
provisions that apply when a remittance transfer is not delivered to a
designated recipient because the sender provided incorrect or
insufficient information, and, in particular, when a sender provides an
incorrect account number and that incorrect account number results in
the funds being deposited in the wrong account. The Bureau is also
proposing to temporarily delay and extend the effective date of the
rule.
DATES: Comments on the proposed temporary delay of the February 7, 2013
effective date of the rules published February 7, 2012 (77 FR 6194) and
August 20, 2012 (77 FR 50244) must be received by January 15, 2013.
Comments on the remainder of the proposal must be received by January
30, 2013.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2012-
0050 or RIN 3170-AA33, by any of the following methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier in Lieu of Mail: Monica
Jackson, Office of the Executive Secretary, Bureau of Consumer
Financial Protection, 1700 G Street NW., Washington, DC 20552.
Instructions: All submissions must include the agency name and
docket number or Regulatory Information Number (RIN) for this
rulemaking. In general, all comments received will be posted without
change to http://www.regulations.gov. In addition, comments will be
available for public inspection and copying at 1700 G Street NW.,
Washington, DC 20552, on official business days between the hours of 10
a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect
the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or social
security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Eric Goldberg or Lauren Weldon,
Counsel, or Dana Miller, Senior Counsel, Division of Research, Markets,
and Regulations, Bureau of Consumer Financial Protection, 1700 G Street
NW., Washington, DC 20552, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Overview
Section 1073 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) \1\ amended the Electronic Fund
Transfer Act (EFTA) \2\ to create a new comprehensive consumer
protection regime for remittance transfers sent by consumers in the
United States to individuals and businesses in foreign countries. For
covered transactions sent by remittance transfer providers, section
1073 creates a new EFTA section 919, and generally requires: (i) The
provision of disclosures prior to and at the time of payment by the
sender for the transfer; (ii) cancellation and refund rights; (iii) the
investigation and remedy of errors by providers; and (iv) liability
standards for providers for the acts of their agents.
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\1\ Public Law 111-203, 124 Stat. 1376, section 1073 (2010).
\2\ 15 U.S.C. 1693 et seq. EFTA section 919 is codified in 15
U.S.C. 1693o-1.
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On February 7, 2012, the Bureau of Consumer Financial Protection
(Bureau) published a final rule to implement section 1073 of the Dodd-
Frank Act. 77 FR 6194 (February Final Rule).\3\ On August 20, 2012, the
Bureau published a supplemental rule adopting a safe harbor for
determining which companies are not remittance transfer providers
subject to the February Final Rule because they do not provide
remittance transfers in the normal course of business, and modifying
several aspects of the February Final Rule regarding remittance
transfers that are scheduled before the date of transfer (August Final
Rule, and collectively with the February Final Rule, the Final Rule).
77 FR 50244. The Final Rule has an effective date of February 7, 2013.
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\3\ A technical correction to the February Final Rule was
published on July 10, 2012. 77 FR 40459. For simplicity, that
technical correction is incorporated into the term ``February Final
Rule.''
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The Final Rule governs certain electronic transfers of funds sent
by consumers in the United States to designated recipients in other
countries and, for covered transactions, imposes a number of
requirements on remittance transfer providers. In particular, the Final
Rule implements EFTA sections 919(a)(2)(A) and (B), which require a
provider to disclose, among other things, the amount to be received by
the designated recipient in the currency to be received. The Final Rule
requires a provider to provide a written pre-payment disclosure to a
sender containing detailed information about the transfer requested by
the sender, specifically including the exchange rate, applicable fees
and taxes, and the amount to be received by the designated recipient.
In addition to the pre-payment disclosure, the provider also must
provide a written receipt when payment is made for the transfer. The
receipt must include the information provided on the pre-payment
disclosure, as well as additional information such as the date of
availability of the funds, the designated recipient's contact
information, and information regarding the sender's error resolution
and cancellation rights. Though the final rule permits providers to
provide estimates in three narrow circumstances, the Final Rule
generally requires that disclosures state the actual exchange rate that
will apply to a remittance transfer and the actual amount that will be
received by the designated recipient of a remittance transfer.
As noted above, the statute requires the disclosure of the amount
to be received by the designated recipient. Because fees and taxes
imposed on the remittance transfer by persons other than the provider
can affect the amount received by the designated recipient, the Final
Rule requires that remittance transfer providers take such fees and
taxes into account when calculating the disclosure of the amount to be
received under Sec. 1005.31(b)(1)(vii), and that such fees and taxes
be disclosed under
[[Page 77189]]
Sec. 1005.31(b)(1)(vi). Comment 31(b)(1)-ii explains that a provider
must disclose any fees and taxes imposed on the remittance transfer by
a person other than the provider that specifically relate to the
remittance transfer, including fees charged by a recipient institution
or agent. Foreign taxes that must be disclosed include regional,
provincial, state, or other local taxes, as well as taxes imposed by a
country's central government.
In the February Final Rule, the Bureau recognized the challenges
for remittance transfer providers in determining fees and taxes imposed
by third parties, but believed that the statute specifically required
providers to disclose the amount to be received and authorized
estimates only in narrow circumstances. The Bureau also noted the
significant consumer benefits afforded by these disclosures. The Bureau
further stated its belief that it was necessary and proper to exercise
its authority under EFTA sections 904(a) and (c) to adopt Sec.
1005.31(b)(1)(vi) to require the itemized disclosure of these fees and
taxes in order to effectuate the purposes of the EFTA.
The Final Rule also implements EFTA sections 919(d) and (f), which
direct the Bureau to promulgate error resolution standards and rules
regarding appropriate cancellation and refund policies, as well as
standards of liability for remittance transfer providers. The Final
Rule thus defines in Sec. 1005.33 what constitutes an error with
respect to a remittance transfer, as well as the remedies when an error
occurs. Of relevance to this proposal, the Final Rule provides that,
subject to specified exceptions, an error includes the failure to make
available to a designated recipient the amount of currency promised in
the disclosure provided to the sender, as well as the failure to make
funds available to a designated recipient by the date of availability
stated in the disclosure. Sec. Sec. 1005.33(a)(1)(iii) and (a)(1)(iv).
Where the error is the result of the sender providing insufficient or
incorrect information, Sec. 1005.33(c)(2)(ii) specifies the two
remedies available: The provider must either refund the funds provided
by the sender in connection with the remittance transfer (or the amount
appropriate to correct the error) or resend the transfer at no cost to
the sender, except that the provider may collect third party fees
imposed for resending the transfer. If the transfer is resent, comment
33(c)-2 explains that a request to resend is a request for a remittance
transfer, and thus the provider must provide the disclosures required
by Sec. 1005.31. Under Sec. 1005.33(c)(2), even if the provider
cannot retrieve the funds once they are sent, the provider still must
provide the stated remedies if an error occurred.
Consistent with the statute, the Final Rule applies to all
remittance transfer providers, whether transfers are sent through
closed network or open network systems, or some hybrid of the two.
Generally, in closed networks, a principal provider offers a service
through a network of agents or other partners that help collect funds
in the United States and disburse the funds abroad. Through the
provider's own contractual arrangements with those agents or other
partners, or through the contractual relationships owned by the
provider's business partner, the principal provider can exercise some
control over the transfer from end-to-end. In general, closed networks
can be used to send transfers that can be received in a variety of
forms, but they are most frequently used to send transfers that are not
received in accounts. In contrast, in an open network, no single
provider has control over or relationships with all of the participants
that may collect funds in the United States or disburse funds abroad.
Under current practice, in open networks, there is generally no global
practice of communications by intermediary and recipient institutions
with originating entities regarding fees and exchange rates applied to
transfers. Unlike closed networks, open networks are typically used to
send funds to accounts. Though they are primarily used by depository
institutions and credit unions, open networks also may be used by non-
depository institutions.
In the February Final Rule, the Bureau stated that it would
continue to monitor implementation of the new statutory and regulatory
requirements. The Bureau has subsequently engaged in dialogue with both
industry and consumer groups regarding implementation efforts and
compliance concerns. Most frequently, and as discussed in more detail
below in the Section-by-Section Analysis, industry has expressed
concern about the costs and challenges to remittance transfer providers
of: (1) The requirement to disclose certain fees imposed by recipient
institutions on remittance transfers; (2) the requirement to disclose
foreign taxes, including taxes charged by foreign regional, provincial,
state, or other local governments; and (3) the inclusion as an error a
failure to deliver a transfer where the error occurs because the sender
provided an incorrect account number to the provider and funds are
deposited into the wrong account.
With respect to both recipient institution fees and foreign taxes,
industry has stated that, to determine the appropriate disclosure,
remittance transfer providers may have to ask numerous questions of
senders that senders may not understand, and to which both senders and
providers may not reasonably be expected to know the answer. For
example, industry has noted that certain recipient institution fees can
vary based on the recipient's status with the institution (i.e., a
preferred customer status), the quantity of transfers received by the
recipient, or other variables that neither the sender nor the provider
are likely to know. Thus, industry has asserted that certain recipient
institution fees and similar foreign taxes are impracticable to
disclose under the Final Rule. Separately, industry has argued that it
is exponentially more burdensome to research and disclose regional,
provincial, state, and other local taxes (``subnational taxes'') than
to research and disclose only those taxes imposed by a country's
central government, and that there is little commensurate benefit to
consumers gained by disclosure of subnational taxes.
Further, since the issuance of the February Final Rule, industry
has expressed concerns about the remedies that apply with respect to
errors that occur because the sender of a remittance transfer provided
incorrect or insufficient information to the remittance transfer
provider. Providers have stated that, while generally rare, in some
cases when a sender provides an incorrect account number, the
remittance transfer may be deposited into the wrong account and,
despite reasonable efforts by the provider, cannot be recovered, thus
requiring providers to bear the cost of the lost principal transfer
amount. In addition, providers have expressed concern about the risks
of fraudulent activity by senders attempting to take advantage of this
part of the rule. With regard to cases in which there are errors,
providers have also asked technical questions about how disclosures
should be provided in certain circumstances where a sender designates a
resend remedy when reporting an error, or never designates a remedy at
all, particularly in situations where the provider is unable to make
direct contact with the sender upon completing its investigation.
Concerns about recipient institution fees and remedies for account
number errors stem in large part from the nature of the open networks
used to transfer funds, as described above. However, while depository
institutions and credit
[[Page 77190]]
unions that are remittance transfer providers are more likely to be
affected by these concerns, other providers may also be impacted to the
extent they offer the ability to transfer funds into a recipient's
account abroad. For example, whereas providers that use closed networks
to send remittance transfers typically are able to determine the fees
imposed by paying agents that distribute funds in cash, originating
providers (whether depository or non-depository) using open networks or
other systems that deposit transfers into accounts generally cannot,
under current practice, determine fees for receiving transfers imposed
by institutions that provide accounts and assess fees pursuant to an
agreement between the recipient institution and the recipient. In
addition, the type of network used by the provider does not drive
concerns about taxes, although the magnitude of the concern may be
greater for providers that allow senders to send remittances to a broad
range of geographic areas, which traditionally have included open
network providers.
Upon further review and analysis, the Bureau believes it is
appropriate to propose narrow adjustments to the Final Rule regarding
these three issues. Due in part to the concerns expressed above, some
remittance transfer providers and industry associations have indicated
that some providers are considering exiting the market or reducing
their offerings, such as by not sending transfers to corridors where
tax or fee information is particularly difficult to obtain, or by
limiting the size or type of transfers sent in order to reduce any risk
associated with mis-deposited transfers. The Bureau is concerned that
this would be detrimental to consumers, both in decreasing market
competition and consumers' access to remittance transfer products. The
Bureau believes that the proposed revisions may help to reduce or
mitigate these risks. In each case, the Bureau believes that the
proposed adjustments to the Final Rule would facilitate compliance,
while maintaining the Final Rule's valuable new consumer protections
and ensuring that these protections can be effectively delivered to
consumers.
II. Summary of the Proposed Rule
The proposal would refine three narrow aspects of the Final Rule.
First, the proposal would provide additional flexibility and guidance
on how foreign taxes and recipient institution fees may be disclosed.
If a remittance transfer provider does not have specific knowledge
regarding variables that affect the amount of foreign taxes imposed on
the transfer, the proposal would continue to permit a provider to rely
on a sender's representations regarding these variables. However, the
proposal would separately permit providers to estimate by disclosing
the highest possible foreign tax that could be imposed with respect to
any unknown variable. Similarly, if a provider does not have specific
knowledge regarding variables that affect the amount of fees imposed by
a recipient's institution for receiving a remittance transfer in an
account, the proposal would permit a provider to rely on a sender's
representations regarding these variables. Separately, the proposal
would also permit the provider to estimate by disclosing the highest
possible recipient institution fees that could be imposed on the
remittance transfer with respect to any unknown variable, as determined
based on either fee schedules made available by the recipient
institution or information ascertained from prior transfers to the same
recipient institution. If the provider cannot obtain such fee schedules
or information from prior transfers, the proposal would allow a
provider to rely on other reasonable sources of information.
Second, the Bureau proposes to exercise its exception authority
under section 904(c) of the EFTA to eliminate the requirement to
disclose foreign taxes at the regional, state, provincial or local
level. Thus, under the proposal, a remittance transfer provider's
disclosure obligation would be limited to foreign taxes imposed on the
remittance transfer by a country's central government. Because the
proposed changes regarding recipient institution fees and taxes, taken
together, could mean that a provider could be making disclosures that
are not exact, the proposal also solicits comment on whether the
existing requirement in the Final Rule to state that a disclosure is
``Estimated'' when estimates are provided under Sec. 1005.32 should be
extended to scenarios where disclosures are not exact, to the extent
permitted by the proposed revisions.
Third, the proposal also would revise the error resolution
provisions that apply when a sender provides incorrect or insufficient
information and, in particular, when a remittance transfer is not
delivered to a designated recipient because the sender provided an
incorrect account number to the remittance transfer provider and the
incorrect account number results in the funds being deposited in the
wrong account. Under the proposal, where the provider can demonstrate
that the sender provided the incorrect account number and that the
sender had notice that the sender could lose the transfer amount, the
provider would be required to attempt to recover the funds but would
not be liable for the funds if those efforts were unsuccessful. The
Bureau also proposes to revise the existing remedy procedures in
situations where a sender provides incorrect or insufficient
information other than an incorrect account number to allow providers
additional flexibility when resending funds at a new exchange rate.
Under the proposed rule, providers would be able to provide oral,
streamlined disclosures and need not treat the resend as an entirely
new remittance transfer. The Bureau also proposes to make conforming
revisions in light of the proposed revisions regarding recipient
institution fees and foreign taxes.
Finally, the Bureau proposes to temporarily delay the effective
date of the Final Rule. The Bureau further proposes to extend the Final
Rule's effective date until 90 days after this proposal is finalized.
The Bureau solicits comment on all aspects of this proposal. In
particular, the Bureau seeks for commenters to provide, in conjunction
with any opinions expressed, specific detail and any available data
regarding current and planned practices, as well as relevant knowledge
and specific facts about any benefits, costs, or other impacts on both
industry and consumers of either the Final Rule, this proposal, or
alternatives suggested by the commenter. The Bureau emphasizes that the
purpose of this rulemaking is to clarify and facilitate compliance with
the Final Rule on these narrow issues, not to reconsider the general
need for--or the extent of--the protections that the general rule
affords consumers. The Bureau also believes the market would benefit
from quicker resolution of these issues. Thus, commenters are
encouraged to frame their submissions accordingly.
The proposed adjustments are intended to facilitate compliance in
part due to concerns about the practicability of the Final Rule given
market models and available information today. After any changes are
finalized, and consistent with the Bureau's approach to the Final Rule,
the Bureau will continue to monitor implementation efforts and market
developments, including whether better information about recipient
institution fees or foreign taxes becomes more available over time,
whether communication mechanisms in open network systems improve, and
whether there are developments in security and verification procedures
and practices.
[[Page 77191]]
The Bureau expects to conduct a more comprehensive review of these
issues and the status of the market over the next two years as it also
evaluates whether to extend a temporary exception that permits insured
institutions to estimate certain disclosures, as permitted by the Dodd-
Frank Act.\4\
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\4\ Pursuant to the statute, that temporary exception sunsets on
July 21, 2015, but the Bureau may extend that date for no more than
five years if the Bureau determines that termination of the
exception would negatively affect the ability of depository
institutions and credit unions to send remittances to locations in
foreign countries.
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III. Legal Authority
Section 1073 of the Dodd-Frank Act created a new section 919 of the
EFTA and requires remittance transfer providers to provide disclosures
to senders of remittance transfers, pursuant to rules prescribed by the
Bureau. In particular, providers must give a sender a written pre-
payment disclosure containing specified information applicable to the
sender's remittance transfer, including the amount to be received by
the designated recipient. The provider must also provide a written
receipt that includes the information provided on the pre-payment
disclosure, as well as additional specified information. EFTA section
919(a).
In addition, EFTA section 919(d) provides for specific error
resolution procedures and directs the Bureau to promulgate rules
regarding appropriate cancellation and refund policies. Except as
described below, the proposed rule is proposed under the authority
provided to the Bureau in EFTA section 919, and as more specifically
described in this SUPPLEMENTARY INFORMATION.
In addition to the Dodd-Frank Act's statutory mandates, EFTA
section 904(a) authorizes the Bureau to prescribe regulations necessary
to carry out the purposes of the title. The express purposes of the
EFTA, as amended by the Dodd-Frank Act, are to establish ``the rights,
liabilities, and responsibilities of participants in electronic fund
and remittance transfer systems'' and to provide ``individual consumer
rights.'' EFTA section 902(b). EFTA section 904(c) further provides
that regulations prescribed by the Bureau may contain any
classifications, differentiations, or other provisions, and may provide
for such adjustments or exceptions for any class of electronic fund
transfers or remittance transfers that the Bureau deems necessary or
proper to effectuate the purposes of the title, to prevent
circumvention or evasion, or to facilitate compliance. As described in
more detail below, Sec. 1005.31(b)(1)(vi), 1005.32(b)(3) and (b)(4)
are proposed pursuant to the Bureau's authority in EFTA section 904(c).
IV. Section-by-Section Analysis
Section 1005.31 Disclosures
EFTA sections 919(a)(2)(A) and (B) require a remittance transfer
provider to disclose, among other things, the amount to be received by
the designated recipient in the currency to be received. Because fees
and taxes imposed on the remittance transfer by foreign institutions
and governments can affect the amount ultimately received by the
designated recipient, the Final Rule requires that providers take fees
and taxes imposed by persons other than the provider into account when
calculating the disclosure of the amount to be received under Sec.
1005.31(b)(1)(vii), and that such fees and taxes be separately
disclosed under Sec. 1005.31(b)(1)(vi).
Since the rule was finalized, industry has continued to express
concern that, where a designated recipient's institution charges the
recipient fees for receiving a transfer in an account, the remittance
transfer provider would not reasonably know whether the recipient has
agreed to pay such fees or how much the recipient has agreed to pay.
Industry has also requested guidance on whether and how to disclose
recipient institution fees that can vary based on the recipient's
status with the institution, quantity of transfers received, or other
variables that are not easily knowable by the sender or the provider.
Separately, industry has expressed concern about the disclosure of
foreign taxes, in two respects. First, industry has argued that it is
significantly more burdensome to research and disclose subnational
taxes than foreign taxes imposed by a country's central government,
with little commensurate benefit to consumers. Second, industry has
suggested that the existing guidance on the disclosure of foreign taxes
is insufficient where variables that influence the applicability of
foreign taxes are not easily knowable by the sender or the provider.
With respect to both recipient institution fees and foreign taxes,
industry has stated that, to determine the appropriate disclosure,
remittance transfer providers may have to ask numerous questions of
senders that senders may not understand; to which senders may not know
the answer; and (with respect to fees) which may be unique to each
recipient institution.
The Bureau has considered these concerns. Upon further review and
analysis, the Bureau believes it is appropriate to provide additional
flexibility and guidance on how fees and taxes imposed by a person
other than the remittance transfer provider may be disclosed. The
Bureau also believes it is appropriate to exercise its exception
authority under section 904(c) of the EFTA to eliminate the requirement
to disclose regional, provincial, state, and other local foreign taxes.
Accordingly, the proposed rule would revise Sec. 1005.31(b)(1)(vi) and
the related commentary, and would add two new provisions to Sec.
1005.32 (as discussed in more detail below). Given this additional
flexibility, the proposed rule also would extend Sec. 1005.31(d) to
require providers to disclose to senders that amounts are estimated in
these circumstances, and would make other conforming revisions to the
Final Rule.
In each case, the Bureau believes that the proposed adjustments to
the Final Rule would facilitate compliance, while maintaining the
rule's valuable, new consumer protections and ensuring that they can be
effectively delivered to consumers. Under the proposal, senders would
continue to receive disclosures with important information about fees
and taxes that may be imposed by the foreign country's central
government. Although not quite as precise, this information is still
useful to help consumers determine the minimum necessary to pay bills
and to provide the intended funds to a recipient.
As noted above, the proposed adjustments to the required fee and
tax disclosures are intended to facilitate compliance in part due to
concerns about the practicability of the Final Rule. The Bureau
solicits comment on whether additional guidance is necessary to address
similar practical or operational questions as those described here.
After any changes are finalized, and consistent with the Bureau's prior
approach, the Bureau will continue to monitor implementation efforts
and market developments, including whether better information about
recipient institution fees or foreign taxes becomes more readily
available over time.
31(b) Disclosure requirements
31(b)(1) Pre-Payment Disclosures
Comment 31(b)(1)-1 Fees and Taxes
Comment 31(b)(1)-1 provides guidance on the disclosure of all fees
and taxes, both foreign and domestic. Comment 31(b)(1)-1.ii focuses
more specifically on how to disclose fees and taxes imposed on the
remittance transfer
[[Page 77192]]
by a person other than the remittance transfer provider. Specifically,
the comment explains that fees and taxes imposed on the remittance
transfer include only those fees and taxes that are charged to the
sender or designated recipient and that are specifically related to the
remittance transfer. Under this framework, a provider must disclose
fees imposed on a remittance transfer by the receiving institution or
agent at pick-up for receiving the remittance transfer, fees imposed on
a remittance transfer by intermediary institutions in connection with
an international wire transfer, and taxes imposed on a remittance
transfer by a foreign country's central government. However, a provider
need not disclose, for example, overdraft fees that are imposed by a
recipient's bank or funds that are garnished from the proceeds of a
remittance transfer to satisfy an unrelated debt, because these charges
are not specifically related to the remittance transfer.
Since the issuance of the Final Rule, industry has requested
guidance on whether and how to disclose various recipient institution
fees, including those that can vary based on the recipient's status
with the institution, the quantity of transfers received, or other
variables that are unlikely to be known by the sender or the provider.
As stated in existing comment 31(b)(1)-1.ii, fees that are specifically
related to the remittance transfer must be disclosed, including fees
that are imposed by a recipient's institution for receiving a wire
transfer. For example, flat per-transfer incoming wire transfer fees
must be disclosed, including flat fees that are tied to a particular
transfer but charged at a later date (such as a ``November 4 wire'' fee
that is not assessed until the end of the November billing cycle), as
these fees are clearly linked to a particular remittance transfer.
While the proposal would generally provide further flexibility on
how these fees may be determined, as discussed below with respect to
proposed comment 31(b)(1)(vi)-4, the Bureau believes it would
facilitate compliance to provide additional clarification in comment
31(b)(1)-1.ii on other types of recipient institution fees that are or
are not specifically related to a remittance transfer. As the proposed
guidance would significantly lengthen the existing comment, the
proposal divides comment 31(b)(1)-1.ii into new subsections 31(b)(1)-
1.ii through -1.v. The Bureau also proposes minor wording adjustments
to ensure consistency with other comments in the Final Rule.
Proposed comment 31(b)(1)-1.iii first revises the reference to
taxes imposed by a foreign government to taxes imposed by a foreign
country's central government, to conform to the proposal to eliminate
the requirement to disclose subnational taxes, discussed below. The
proposed comment also builds on the guidance described above, and
clarifies that account fees are not specifically related to a
remittance transfer if such fees are merely assessed based on general
account activity and not for receiving transfers. Thus, where an
incoming remittance transfer results in a balance increase that
triggers a monthly maintenance fee, that fee is not specifically
related to a remittance transfer.
Proposed comment 31(b)(1)-1.iv then explains that a fee that
specifically relates to a remittance transfer may be structured on a
flat per-transaction basis, or may be conditioned on other factors
(such as account status or the quantity of remittance transfers
received) in addition to the remittance transfer itself. For example,
where an institution charges an incoming wire fee on most customers'
accounts, but not on preferred accounts, the Bureau believes such a fee
is nonetheless specifically related to a remittance transfer.
Similarly, if the institution assesses a fee for every transfer beyond
the fifth received each month, the Bureau believes such a fee would be
specifically related to the remittance transfer regardless of how many
remittance transfers preceded it that month. In both situations, while
additional variables may determine whether a fee is imposed or waived
in a particular case, the fee itself is assessed specifically for
receiving a particular transfer. In either case, the fee would be
subject to disclosure under Sec. 1005.31(b)(1)(vi), but as discussed
below, Sec. 1005.32(b)(4) would offer providers some flexibility in
how to disclose the fee.
31(b)(1)(vi) Fees and Taxes Imposed by a Person Other Than the Provider
Section 1005.31(b)(1)(vi) contains the Final Rule's requirement to
disclose any fees and taxes imposed on the remittance transfer by a
person other than the remittance transfer provider, in the currency in
which the funds will be received by the designated recipient.
Specifically with respect to taxes, the Final Rule currently requires
the disclosure of any applicable foreign taxes, including regional,
provincial, state, or other local taxes as well as taxes imposed by a
country's central government.
After further consideration, and for the reasons discussed below,
the Bureau believes that it is appropriate to propose revising the
Final Rule regarding foreign tax disclosures. The proposal would revise
Sec. 1005.31(b)(1)(vi) to state that only foreign taxes imposed by a
country's central government on the remittance transfer need be
disclosed. New proposed comment 31(b)(1)(vi)-3 would further clarify
that regional, provincial, state, or other local foreign taxes need not
be disclosed, although the provider could choose to disclose them.
Since the adoption of the Final Rule, the Bureau has continued to
monitor the availability to remittance transfer providers of pertinent
foreign tax information. The Bureau believes that, while significant
efforts are likely to permit industry members in general to access
reliable and current information on the relevant foreign taxes imposed
by a country's central government, there does not appear to be a
reasonable prospect that comparable resources will soon exist across
the market to permit access to reliable and current information on
foreign taxes imposed at the subnational level (including confirmation
of the absence of such taxes in most jurisdictions). Industry has
suggested that subnational taxes on remittance transfers are
comparatively infrequent as compared with such taxes at the national
level, and that when they do exist, the tax rates at the subnational
level are typically lower. Moreover, the number of potential taxing
jurisdictions is exponentially larger at the subnational level, and the
Final Rule would imply compliance obligations to assess tax incidence
and rates relating to all such subnational jurisdictions to which a
provider sends remittance transfers.
The Bureau is concerned that if disclosure of foreign subnational
taxes is required, a number of remittance transfer providers could exit
the market or significantly reduce their offerings because of the
current lack of ongoing reliable and complete information sources. The
Bureau also believes that the loss of these market participants would
be detrimental to consumers, in decreasing market competition and the
convenient availability of remittance transfer services.
Accordingly, the Bureau believes the proposed elimination of the
requirement to disclose subnational taxes is an exception that is
necessary and proper under EFTA section 904(c) both to effectuate the
purposes of the EFTA and to facilitate compliance. Under the proposed
revision, remittance transfer providers would remain required to
disclose only those foreign taxes imposed by a country's central
[[Page 77193]]
government. The Bureau believes the revision would mitigate the
compliance cost imposed on providers, and potentially passed on to
their customers, that may be associated with the required disclosure of
subnational tax information. Particularly if there is a comparatively
infrequent incidence and lesser amount of subnational taxes, the Bureau
believes that elimination of the compliance costs associated with
subnational tax disclosures and the reduced risk of market departures
(or other limitations) owing to such compliance costs would effectuate
the purposes of the statute and facilitate compliance.
While the revised Sec. 1005.31(b)(1)(vi) would provide that only
the amount of foreign taxes imposed by a country's central government
on the remittance transfer needs to be disclosed, a remittance transfer
provider would remain free to disclose an amount that includes
subnational taxes of which it is aware.
The Bureau seeks comment on whether limiting the required
disclosures of foreign taxes to taxes imposed by a country's central
government strikes the appropriate balance between easing compliance
burden and protecting consumers, or whether there are circumstances in
which a provider should be required to disclose additional foreign tax
information. In particular, the Bureau seeks comment on whether
resources have developed or are developing (and if so, how quickly) for
remittance transfer providers to obtain reliable foreign subnational
tax rate information. The Bureau also seeks comment on the practical
significance to consumers if remittance service providers are not
required to disclose such information under the rule, including any
information on the incidence and magnitude of foreign subnational
taxes, particularly in countries that receive substantial flows of
remittance transfers.
Comment 31(b)(1)(vi)-2
Comment 31(b)(1)(vi)-2 of the Final Rule provides guidance on how
to determine taxes for purposes of the disclosure required by Sec.
1005.31(b)(1)(vi). In particular, the existing comment states that if a
remittance transfer provider does not have specific knowledge regarding
variables that affect the amount of taxes imposed by a person other
than the provider for purposes of determining these taxes, the provider
may rely on a sender's representations regarding these variables.
Further, the comment states that if a sender does not know the
information relating to the variables that affect the amount of taxes
imposed by a person other than the provider, the provider may disclose
the highest possible tax that could be imposed for the remittance
transfer with respect to any unknown variable. The Bureau adopted this
comment in the Final Rule in response to industry comments that taxes
can vary depending on a number of variables, such as the tax status of
the sender or recipient, or the type of accounts or financial
institutions involved in the transfer. In adopting comment
31(b)(1)(vi)-2, the Bureau stated its belief that it is necessary to
provide a reasonable mechanism by which the provider may disclose the
foreign tax where information may not be known by the sender or the
provider.
As discussed in more detail below, the Bureau is proposing to
provide additional flexibility regarding the determination of foreign
taxes where applicability may be impacted by certain variables in a new
Sec. 1005.32(b)(3). Accordingly, the Bureau is proposing to delete
portions of the guidance in existing comment 31(b)(1)(vi)-2 as being
superseded by the new proposed provision and related guidance.
Comment 31(b)(1)(vi)-2 would continue to state that if a remittance
transfer provider does not have specific knowledge regarding variables
that affect the amount of taxes imposed by a person other than the
provider for purposes of determining these taxes, the provider may rely
on a sender's representations regarding these variables. The Bureau
believes providers should continue to be permitted to rely on senders'
representations regarding variables that affect foreign taxes, because
providers should be permitted to take senders' representations as true,
and because such representations could result in a more accurate
approximation of the applicable taxes. Accordingly, as discussed below
regarding the error resolution requirements in proposed Sec.
1005.33(a)(2)(iv) and comment 33(a)(2)(iv)-9, to the extent a provider
relies on a sender's representations in this manner, any resulting
discrepancy between the amount disclosed and the amount actually
received would not constitute an error. Thus, for example, it would not
be an error if reliance on a sender's representations results in a
disclosed foreign tax amount that is less than what is actually imposed
on the transfer. As discussed below, the proposed revisions would
provide the same result with regard to situations in which providers
rely on a sender's representations regarding possible recipient
institution fees in accordance with proposed comment 31(b)(1)(vi)-4.
Comment 31(b)(1)(vi)-3
New proposed comment 31(b)(1)(vi)-3 is described above in the
discussion of the proposed revisions to Sec. 1005.31(b)(1)(vi)
concerning disclosure of foreign taxes imposed by a country's central
government.
Comment 31(b)(1)(vi)-4
While the Final Rule provided guidance in comment 31(b)(1)(vi)-2 on
how to determine foreign taxes where variables could affect the amount
to be disclosed, the rule did not provide guidance with respect to
variables that could affect the fees imposed on the designated
recipient by the recipient's institution for receiving the transfer in
an account. For the reasons discussed below, the Bureau is proposing to
provide additional flexibility in a new proposed Sec. 1005.32(b)(4)
regarding the determination of such fees.
In addition, the Bureau believes it is appropriate to provide
similar guidance regarding reliance on a sender's representations with
respect to recipient institution fees, as exists addressing foreign
taxes. New proposed comment 31(b)(1)(vi)-4 is structured similarly to
proposed comment 31(b)(1)(vi)-2. The proposed comment explains that in
some cases, where a remittance transfer is sent to a designated
recipient at an account at a financial institution, the institution
imposes a fee on the remittance transfer pursuant to an agreement with
the recipient. The amount of the fee imposed by the institution may
vary based on whether the designated recipient holds a preferred status
account with a financial institution, the quantity of transfers
received, or other variables. In this scenario, if a remittance
transfer provider does not have specific knowledge regarding variables
that affect the amount of fees imposed by the recipient's institution
for receiving a transfer in an account, the proposed comment would
allow the provider to rely on a sender's representations regarding
these variables.
Sec. 1005.31(d) Estimates
Under the Final Rule, remittance transfer providers generally must
disclose exact amounts, except under the limited circumstances
permitted by Sec. 1005.32. Therefore, under Sec. 1005.31(d) of the
Final Rule, where providers estimate disclosures under Sec. 1005.32,
the estimated disclosure must be described using the term ``Estimated''
or a substantially similar term, which appears in close proximity to
the disclosure.
Due to the proposed revisions to Sec. 1005.31(b)(1)(vi) and the
related
[[Page 77194]]
commentary concerning subnational foreign taxes, as described above,
remittance transfer providers would be permitted to disclose as the
total amount of transfer pursuant to Sec. 1005.31(b)(1)(vii) an amount
that would not match the amount actually received by the designated
recipient. Thus, the Bureau proposes amending Sec. 1005.31(d) to
require that a provider also use the term ``Estimated'' on disclosure
forms if it is not disclosing regional, provincial, state, or local
foreign taxes, as permitted by Sec. 1005.31(b)(1)(vi). As Sec.
1005.31(d) already references Sec. 1005.32, the same requirement would
apply to proposed Sec. Sec. 1005.32(b)(3) and (b)(4), discussed below,
which would provide further flexibility for determining foreign taxes
and recipient institution fees. The proposal would make conforming
revisions to comment 31(d)-1.
The proposed comment would further explain that, if the provider is
relying on the sender's representations or has specific knowledge
regarding variables that affect the amount of fees disclosed under
Sec. 1005.31(b)(1)(vi), and is not otherwise providing estimated
disclosures, Sec. 1005.31(d) does not apply and therefore no
``Estimated'' label is required. The Bureau believes that providers
that rely on sender's representations regarding variables should be
able to take the information provided as representations that lead to
exact disclosures, even if the representations later turn out to be
incorrect. For similar reasons, the proposed comment also explains that
Sec. 1005.31(d) does not apply to foreign tax disclosures if the
provider discloses all applicable taxes (including applicable regional,
provincial, state, or other local foreign taxes), if the provider is
relying on the sender's representations or has specific knowledge
regarding variables that affect the amount of foreign taxes imposed by
a country's central government, and if the provider is not otherwise
providing estimated disclosures.
The Bureau believes that the use of the term ``Estimated,'' either
when subnational taxes are not disclosed or when foreign tax and
recipient institution fee estimates are provided in accordance with
proposed Sec. Sec. 1005.32(b)(3) and (b)(4), would provide sufficient
disclosure to the sender to warn that disclosed amounts may not be
precise, without requiring substantial changes to the disclosure form
that could delay implementation of the statutory scheme. Further, the
Bureau anticipates that compared to other mechanisms for giving senders
notice, this proposed mechanism for alerting senders that amounts
received may not be exact will minimize the systems changes that could
be required, because the Final Rule already sets forth circumstances in
which the term ``Estimated'' (or a substantially similar term) must be
used.
At the same time, the Bureau is concerned that, particularly where
subnational taxes are not disclosed, senders may receive disclosures
that use the term ``Estimated'' the vast majority of the time, which
could impair their ability to compare disclosures among remittance
transfer providers, and could have an adverse impact on the exercise of
error resolution rights. An alternative approach would be to require
that a more specific statement be added to the disclosure to note, for
instance, that ``Additional taxes by regional or local governments may
apply'' rather than to require use of the ``Estimated'' label for every
case in which a provider has decided not to disclose any subnational
taxes. However, it is unclear whether such a disclosure would
substantially benefit consumers over the simpler label, whether it
would be understandable to consumers, and how much additional time and
expense would be required for providers to modify their forms in this
way.
Thus, the Bureau solicits comment on whether remittance transfer
providers should be required to indicate those circumstances in which
subnational taxes are not disclosed or in which fees and taxes are
estimated in accordance with proposed Sec. 1005.32(b)(3) or (4) with
an ``Estimated'' label, and in particular, whether such labeling should
be required in circumstances where amounts disclosed would be exact,
but for the non-disclosure of foreign subnational taxes. To the extent
foreign subnational taxes apply less frequently than foreign taxes
imposed by a central government, or if such taxes tend to be lower than
taxes imposed by central governments in the same country, the Bureau
seeks comment on whether disclosures may be clearer without much
detriment to accuracy if providers do not use the term ``Estimated.''
The Bureau solicits comment on the extent to which either circumstance
is true, and also solicits comment on alternative disclosures that
could be provided, and on the time and expense to implement either the
``Estimated'' label or a more detailed disclosure.
Section 1005.32 Estimates
31(b) Permanent Exceptions
32(b)(3) Permanent Exception Where Variables Affect Taxes Imposed by a
Person Other Than the Provider
For the reasons described above, comment 31(b)(1)(vi)-2 of the
Final Rule provides guidance on how to determine taxes for purposes of
the disclosure required by Sec. 1005.31(b)(1)(vi). Industry has
requested further guidance on how to disclose foreign taxes where
variables that influence the applicability of taxes are not easily
knowable by the sender or the remittance transfer provider. Industry
has expressed concern that under the current guidance, to determine the
appropriate disclosure, providers may have to ask numerous questions of
senders that senders may not understand, and to which senders may not
know the answer.
The Bureau agrees that there may be certain variables that a sender
and a remittance transfer provider may not reasonably be expected to
know, and that further guidance is appropriate. The Bureau believes
that providing an additional mechanism for disclosing foreign taxes
will facilitate compliance with the rule. Thus, the Bureau believes it
is appropriate to exercise its exception authority under section 904(c)
of the EFTA to propose a new permanent exception in Sec.
1005.32(b)(3). Proposed Sec. 1005.32(b)(3) states that, for purposes
of determining the taxes to be disclosed under Sec. 1005.31(b)(1)(vi),
if a provider does not have specific knowledge regarding variables that
affect the amount of taxes imposed by a person other than the provider,
the provider may disclose the highest possible tax that could be
imposed on the remittance transfer with respect to any unknown
variable.
Proposed comment 32(b)(3)-1 clarifies the exception. The proposed
comment explains that the amount of taxes imposed by a person other
than the provider may depend on certain variables. Under proposed Sec.
1005.32(b)(3), a provider may disclose the highest possible tax that
could be imposed on the remittance transfer with respect to any unknown
variable. For example, if a tax may vary based upon whether a
recipient's institution is grandfathered under existing law, or whether
the recipient has reached a transaction threshold above which taxes are
assessed, the provider may simply assume that the tax applies without
having to ask the sender first. In such a case, the proposed comment
explains that the provider should disclose the
[[Page 77195]]
highest possible tax that could be imposed. If the provider expects
that variations may result from differing interpretations of law or
regulation by the paying agent or recipient institution, the provider
may assume that the highest possible tax that could be imposed applies.
The Bureau believes that permitting remittance transfer providers
to make assumptions about variables as a distinct alternative to asking
senders for information (as discussed in comment 31(b)(1)(vi)-2) would
provide additional flexibility and would resolve concerns about senders
not understanding or knowing the answer to questions about the
variables. Permitting providers to disclose the highest possible tax
that could be imposed also would allow providers to make assumptions
about variables that providers themselves do not know, such as those
discussed in the proposed examples. As a result, the Bureau believes
that proposed Sec. 1005.32(b)(3) would provide a more practicable
mechanism for disclosing foreign taxes than current comment
31(b)(1)(vi)-2, discussed above.
Even with these proposed changes, senders would continue to receive
tax disclosures. The Bureau believes it is appropriate to continue to
focus the guidance on providing the highest possible tax that could be
imposed, so that the sender is not surprised by a deduction for taxes
that is larger than the amount disclosed (except in cases in which
taxes other than those imposed by central governments may apply).\5\ As
stated in the February Final Rule, the Bureau believes that tax
information is useful to consumers who are trying to make sure that
they send enough money, e.g., to assist a family member or pay a bill.
The Bureau believes that the proposed revisions would preserve the
intent and valuable consumer benefits of the statute while balancing
the need to provide a reasonable disclosure mechanism.
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\5\ To the extent that subnational taxes are not applicable,
then the disclosure of foreign taxes would be complete.
---------------------------------------------------------------------------
In addition to factual questions regarding variables, industry has
also expressed concern about remittance transfer providers' ability to
determine the applicable foreign tax given variations in the
application of foreign tax requirements. For example, industry has
suggested that foreign payout agents or recipient institutions may
interpret and apply foreign tax requirements differently from one
another, which may result in some uncertainty around whether a tax will
be assessed, and if so, what precisely it will be. Thus, proposed
comment 32(b)(3)-1 states that if the provider expects that variations
may result from differing interpretations of law or regulation by the
paying agent or recipient institution, the provider may assume that the
highest possible tax that could be imposed applies. Under this proposed
revision, providers would continue to be responsible for researching
and identifying applicable foreign tax laws assessed by a country's
central government. However, the proposed revision would provide
flexibility by allowing providers to disclose the highest amount
revealed by their research.
Under the Final Rule and this proposal, providers generally must
provide accurate tax information. While the Bureau expects that changes
in foreign tax law are generally announced in advance of their
effective date, thus affording providers time to update their
disclosures, the Bureau is concerned that this may not always be the
case. The Bureau therefore requests comment on whether the Final Rule
should be revised to incorporate a grace period for implementing
changes in foreign tax law, and if so, how long.
32(b)(4) Permanent Exception Where Variables Affect Recipient
Institution Fees
As noted above, the Final Rule did not provide guidance on how to
determine fees imposed by the designated recipient's institution for
receiving the transfer in an account. As with foreign taxes, industry
has expressed concern that in some cases, a remittance transfer
provider would not know whether the recipient has agreed to pay such
fees or how much the recipient may have agreed to pay. Industry has
also requested clarification on whether and how to disclose recipient
institution fees that can vary based on the recipient's status with the
institution, the quantity of transfers received, or other variables
that are not easily knowable by the sender or the provider. Without
further guidance and flexibility, industry has argued that the
requirement to disclose recipient institution fees is impracticable,
which could drive providers to exit the market or significantly reduce
their offerings.
The Bureau acknowledges these concerns and agrees that, for
recipient institution fees that are specifically related to a
remittance transfer and therefore required to be disclosed, additional
flexibility in determining how to disclose these fees would facilitate
compliance with the rule without significantly undermining its
benefits. Accordingly, the Bureau believes it is appropriate to
exercise its exception authority under section 904(c) of the EFTA to
propose a new Sec. 1005.32(b)(4). Proposed Sec. 1005.32(b)(4)(i)
would state that, for purposes of determining the fees to be disclosed
under Sec. 1005.31(b)(1)(vi), if a remittance transfer provider does
not have specific knowledge regarding variables that affect the amount
of fees imposed by a designated recipient's institution for receiving a
transfer in an account, the provider may disclose the highest possible
recipient institution fees that could be imposed on the remittance
transfer with respect to any unknown variable, as determined based on
either fee schedules made available by the recipient institution or
information ascertained from prior transfers to the same recipient
institution. Proposed comment 32(b)(4)-1 explains proposed Sec.
1005.32(b)(4)(i) and adds as an example that if a provider relies on an
institution's fee schedules, and the institution offers three accounts
with different incoming wire fees, the provider should take the highest
fee and use that as the basis for disclosure.
Proposed Sec. 1005.32(b)(4)(ii) states that, if the provider
cannot obtain such fee schedules or does not have such information, a
provider may rely on other reasonable sources of information, if the
provider discloses the highest fees identified through the relied-upon
source. Proposed comment 32(b)(4)-2 states that reasonable sources of
information include: Fee schedules published by competitor
institutions; surveys of financial institution fees; or information
provided by the recipient institution's regulator or central bank.
Proposed Sec. 1005.32(b)(4) would only address fees for receiving
transfers in an account that are based on an agreement between the
recipient institution and the recipient. Currently, determination of
these fees by originating providers (whether depository or non-
depository) is particularly difficult or impracticable due to the
nature of open networks. In contrast, providers using closed networks
can generally exercise some control over transfers from end-to-end and
are often not making transfers into accounts, making determination of
fees assessed by payout agents more practicable.
The proposed mechanism for determining these fees differs from the
mechanism in proposed Sec. 1005.32(b)(3) for determining foreign taxes
in recognition of the fact that, while identifying applicable foreign
taxes presents challenges, these taxes are based on laws or regulations
that are generally publicly available in some form, even if information
may be
[[Page 77196]]
difficult to ascertain in some instances. In contrast, the Bureau
understands that foreign institutions may be prohibited by law from
sharing, or unwilling to share, specific accountholder fee information.
Further, it may be impracticable to obtain a fee schedule for every
recipient, or to contact institutions in real time. Thus, the Bureau
believes that proposed Sec. 1005.32(b)(4) will provide a more
practicable mechanism for disclosing recipient institution fees.
The Bureau further believes that a recipient institution's fee
schedule, and information ascertained from prior transfers to the same
recipient institution, are likely the best resources for estimating the
fees that would be applicable to a remittance transfer, and thus
providers should rely upon those sources, if available. However, in
some cases, foreign institutions may not be willing to share
institution-level fee schedules, or such schedules may not be easily
obtainable. Accordingly, the proposed rule provides for alternative
reasonable sources of information upon which providers can rely.
The Bureau acknowledges that permitting providers to base
disclosures on sources other than institution-specific sources may
result in a provider disclosing fees that underestimate those charged
by an individual recipient institution. Nonetheless, the Bureau
believes that the sources of information set out in the proposed
comment should result in a reasonable approximation of the amount of
fees that could be assessed, and provide the sender sufficient
information about the amount to be received. For example, competitor
institutions likely charge fees within a similar range as the recipient
institution, and thus their fee schedules may provide an indication as
to market practice. Further, the Bureau believes that the flexibility
provided by the proposed rule and related comment should encourage
providers to remain in the market. The Bureau solicits comment on
whether the sources of information set forth in proposed Sec.
1005.32(b)(4) and proposed comment 32(b)(4)-1 should be included, and
whether additional reasonable sources of information should be added.
In any case, for similar reasons, as discussed above with respect to
proposed Sec. 1005.32(b)(3), the Bureau believes that it is
appropriate to focus the guidance on providing the highest possible
fees that could be imposed.
As proposed, the sources of information set forth in proposed Sec.
1005.32(b)(4) and the related commentary are not time-limited. The
Bureau believes that reliance on the most updated source would provide
the sender with the best information. However, the Bureau is concerned
that imposing a duty to update relied-upon sources on a frequent basis
could become unduly burdensome, particularly as providers are working
to implement the rule, and because resources collecting this
information have not yet fully developed or become widely available to
providers. The Bureau solicits comment on whether reasonable sources of
information should be time-limited. For example, should the rule
require relied-upon fee schedules to have been published or confirmed
as valid within the last year?
Even if proposed Sec. 1005.32(b)(4) is adopted, senders will
continue to receive fee disclosures. Some remittance transfer providers
have suggested that the Bureau exercise its exception authority under
the EFTA to eliminate the requirement to disclose recipient institution
fees mandated by the statute. As stated in the February Final Rule, the
Bureau believes that this fee information provides valuable consumer
benefits by ensuring that senders are aware of the impact of back-end
fees, including knowing whether the amount received will be sufficient
to pay important expenses. These disclosures also provide senders with
greater transparency regarding the costs of remittance transfers, and
assist senders in comparing costs among providers, for example, where
such fees may impact a sender's decision whether to send funds for cash
pick-up or to an account, or where a recipient may have accounts at
different institutions and the sender is deciding to which account to
send funds.
Further, eliminating the requirement to disclose recipient
institution fees would create inconsistency between the disclosures
provided for transfers where fees are imposed by a designated
recipient's institution for receiving a transfer in an account, and
those provided for other types of transfers, such as where fees are
charged by paying agents, regarding which the Bureau does not think it
is appropriate to adjust the requirement under the Final Rule. Notably,
during the Federal Reserve Board's consumer testing on remittances,
consumer participants cited unexpected third-party fees as a source of
concern.\6\ Therefore, the Bureau does not believe that it is
appropriate to exercise its exception authority to eliminate the
disclosure of recipient institution fees altogether. The Bureau
believes that the proposed revisions would preserve the intent and
consumer benefits of the statute while balancing the need to provide a
reasonable mechanism for determining applicable fees.
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\6\ ICF Macro International, Inc., Summary of Findings: Design
and Testing of Remittance Disclosures, at iv (Apr. 2011), available
at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110512_ICF_Report_Remittance_Disclosures_(FINAL).pdf.
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Section 1005.33 Procedures for Resolving Errors
EFTA section 919(d) provides that remittance transfer providers
shall investigate and resolve errors where a sender provides a notice
of an error within 180 days of the promised date of delivery of a
remittance transfer. The statute generally does not define what types
of transfers and inquiries constitute errors, but rather gives the
Bureau the authority to define ``error'' and to prescribe standards for
the error resolution process. In the Final Rule, the Bureau adopted
Sec. 1005.33 to implement new error resolution requirements for
remittance transfers.
Since the issuance of the Final Rule, industry has expressed
concerns about the remedies available when a sender of a remittance
transfer provides an incorrect account number to the remittance
transfer provider. Providers have stated that in some cases, a
remittance transfer may be deposited into the wrong account and,
despite reasonable efforts, cannot be recovered. Under the Final Rule,
a provider is obligated to resend or refund the total amount of the
remittance transfer regardless of whether it can recover the funds.
Industry has noted that this problem is of particular concern with
respect to transfers of large sums, particularly for smaller
institutions that might have more difficulty bearing the cost of the
entire transfer amount. In addition, providers have expressed concern
that the Final Rule creates a potential for fraud, despite an exception
in the Final Rule for fraud. See Sec. 1005.33(a)(1)(iv)(C). Due to
these and other concerns, discussed in detail below, the Bureau is
proposing to amend Sec. 1005.33 and the accompanying commentary.
The Bureau is also proposing several other changes to the error
resolution procedures in Sec. 1005.33 to address questions about how
remittance transfer providers should provide remedies to senders under
the Final Rule's error resolution provisions, and to streamline
providers' provision of remedies. In addition, the Bureau is proposing
conforming changes to the error resolution procedures in light of
proposed revisions regarding the disclosure of foreign taxes and
recipient
[[Page 77197]]
institution fees, and to make several technical, non-substantive
changes.
33(a) Definition of Error
33(a)(1) Types of Transfers or Inquiries Covered
Section 1005.33(a)(1) lists the type of transfers or inquiries that
constitute ``errors'' under the Final Rule. The types of errors
relevant to this proposal are discussed in detail below.
33(a)(1)(iii) Incorrect Amount Received by the Designated Recipient
The Bureau proposes to revise comment 33(a)-4 to make technical
corrections to the comment. Comment 33(a)-4, which addresses the
extraordinary circumstances exception to the error defined in Sec.
1005.33(a)(1)(iii), improperly cites to Sec. 1005.33(a)(1)(iv) instead
of Sec. 1005.33(a)(1)(iii)(B). The proposed revisions to comment
33(a)-4 correct this error and a related error regarding the
description of the exception.
33(a)(1)(iv) Failure To Make Funds Available by Date of Availability
Section 1005.33(a)(1)(iv) defines ``error'' to include a remittance
transfer provider's failure to make funds available to the designated
recipient by the date of availability stated on the receipt or combined
disclosure, subject to three listed exceptions, including an exception
for remittance transfers made with fraudulent intent by the sender or
any person acting in concert with the sender. See Sec.
1005.33(a)(1)(iv)(C). Comment 33(a)-5 explains the scope of the error
in Sec. 1005.33(a)(1)(iv) and notes that the error includes, among
other things, the late delivery of funds, the total non-delivery of a
remittance transfer, and the delivery of funds to the wrong account.
See comments 33(a)-5.i and .ii.
Although several industry commenters had objected that remittance
transfer providers should not have to bear the cost of mistakes caused
by parties outside the provider's control, the Bureau noted in the
February Final Rule that a number of other federal consumer financial
protection regimes require financial service providers to investigate
and correct errors for which they may not be at fault. The Bureau also
noted that providers are generally in a better position than consumers
to identify errors and to seek recovery from downstream institutions.
Furthermore, the Bureau noted that placing responsibility on providers
to resolve errors strengthens their incentives to develop policies,
procedures, and controls to reduce and minimize errors in the first
instance and similarly to work with downstream institutions and
business partners to improve controls and to develop contractual
solutions to address errors.
In particular, however, with regard to situations in which the
sender provides incorrect or insufficient information, the Bureau
acknowledged that there were unique equities. Specifically, the Bureau
concluded that it was important that error resolution procedures apply
to such cases, but also agreed with commenters that a sender's mistake
should not obligate a remittance transfer provider to bear all of the
costs for resending a transfer, including the principal transfer
amount. Accordingly, the Final Rule sets forth special remedy
provisions that allow providers to collect third-party fees a second
time when resending a remittance transfer that had previously not been
delivered due to incorrect or insufficient information provided by the
sender.
The Final Rule does not differentiate, however, between those
situations where the sender's mistake regarding the account number
results in a deposit to the wrong account and those situations in which
the remittance transfer simply does not go through. In the former
situation, where the transfer results in a deposit into the wrong
account, if a remittance transfer provider is unable to recover the
money from the account after working with the recipient institution,
the Final Rule requires that the provider, at its own expense, resend
or refund the funds, depending on which remedy was selected by the
sender. The Bureau noted that situations in which funds cannot be
recovered after a deposit to the wrong account appear to be quite rare,
and explained that it believed that the approach adopted with respect
to errors by senders would encourage providers and other involved
parties to develop security procedures to limit further the risk of
funds being deposited in an account when the designated recipient named
in the receipt does not match the name associated with the account
number. In addition, the Bureau expected that the exception for
transfers made with fraudulent intent by the sender or those working in
concert with the sender in Sec. 1005.33(a)(1)(iv)(C) of the Final Rule
would address industry's concerns about the risk of fraud created by
the error rules.
Nevertheless, upon further analysis, and for the reasons discussed
below, the Bureau is proposing to revise the definition of error in
Sec. 1005.33(a)(1)(iv) by adding a fourth, conditional exception.
Proposed Sec. 1005.33(a)(1)(iv)(D) would exclude from the definition
of error a failure to make funds available to the designated recipient
by the disclosed date of availability, where such failure results from
the sender having given the remittance transfer provider an incorrect
account number, provided that the provider meets the conditions set
forth in proposed Sec. 1005.33(h). These conditions, discussed in
detail below, would require providers to notify senders of the risk
that their funds could be lost, to investigate reported errors, and to
attempt to recover funds that are deposited in the wrong account.
However, if the proposed exception applies, providers would not be
required to bear the cost of refunding or resending transfers if funds
ultimately could not be recovered.
Since the Bureau published the February Final Rule, it has
monitored industry's efforts towards implementing the rule. Industry
has elaborated on its concerns expressed during the initial comment
period that the systems used to send remittance transfers to foreign
accounts do not allow remittance transfer providers to verify
designated recipients' account numbers before remittance transfers are
sent. More generally, many providers have also reported that they have
not yet developed security procedures that enable them to be able to
confirm the accuracy of account numbers provided by senders before
sending a transfer.
Remittance transfer providers have explained that they send
remittance transfers to accounts through a number of different systems.
In many of these systems, intermediary and receiving institutions are
permitted to rely on the account number provided by the sender of the
remittance transfer to route the transfer. In using these systems,
providers, as well as intermediary and recipient institutions, often do
not cross-check account numbers with the name of the accountholder or
other identifier in the remittance transfer to confirm that they match
before transmitting or crediting the transfer to an account.
Furthermore, providers and intermediary institutions' systems are
designed to allow straight-through processing, whereby they process
incoming transfers using automated systems that rely on account numbers
and not the name of the recipient. Even where straight-through
processing is not used, it may be common for providers and intermediary
and recipient institutions to rely, as a matter of practice, on account
numbers because it may be challenging for a foreign institution to
verify a name on a payment order from the United States due to spelling
and language variances,
[[Page 77198]]
truncation of long names, and other systems limitations.
The Bureau, therefore, believes that the proposed changes will more
closely match existing practice. To the extent remittance transfer
providers' existing methods for sending transfers do not allow or
facilitate verification of account numbers before sending the
remittance transfer, the Bureau is aware that individual providers,
particularly smaller providers, sending transfers through an open
network have limited ability to influence these global systems in the
short term. The Bureau continues to believe it is important for
industry to develop improved security procedures and expects to engage
in a dialogue with industry about how to encourage the growth of
improved controls and communication mechanisms, but the Bureau
understands that such changes are unlikely to be implemented in the
near future. The Bureau believes an interim disruption would not be in
consumers' best interests and will instead continue to evaluate the
development of procedures as it monitors providers' implementation of
the rule.
Where there is a deposit into the wrong account, the Bureau
believes that many, if not most, remittance transfer providers already
attempt to recover the principal amount of the transfer. However,
because providers have reported that they often do not have direct
relationships with receiving institutions and that in some instances
those institutions may be unresponsive, providers may face difficulties
in recovering funds from the wrong account. The Bureau believes that,
in many instances, to reverse these transactions requires the
accountholder to authorize a debit from the account and, thus, the lack
of this authority may prohibit a recipient institution from debiting
the account in the amount of the incorrect deposit absent an
authorization. Relatedly, a provider in the United States may be able
to do little to assist the foreign institution in its attempt to
persuade its accountholder to provide debit authorization due to the
lack of privity between the provider and the recipient institution or
the accountholder.
In addition to these concerns, the Bureau also believes that the
proposed changes will adhere more closely state law as it existed prior
to EFTA Sec. 919. In particular, Uniform Commercial Code (UCC) Article
4A covers the transfer of money between banks, including transfers by
banks on behalf of customers, and into institutions have incorporated
many of its provisions into existing policies and disclosures to
customers.\7\ UCC 4A-207 generally addresses those circumstances where
a supplied account number refers to an incorrect account; that is, the
account number identifies an account that differs from the named
designated recipient's account. Under UCC 4A-207, when a sender
provides an incorrect account number and funds are transmitted to an
incorrect account and cannot be recovered, it is the sender--not the
bank--that can lose the transfer amount if the bank has met certain
conditions. While the UCC is a U.S. state law regime, industry has
stated that many foreign countries' laws and/or banking agreements also
contain analogous rules.
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\7\ UCC Article 4A generally applies to wire transfers but not
automated clearinghouse (ACH) transfers or transfers that are not to
an account. UCC Article 4A-108 provides that UCC Article 4A does not
apply ``to a funds transfer, any part of which is governed by the
Electronic Fund Transfer Act.'' When EFTA section 919, as
implemented by this rule, becomes effective, wire transfers sent on
a consumer's behalf that are remittance transfers will be governed
in part by the EFTA. The February Final Rule (77 FR 6194, 6210-12
(Feb. 7, 2012)) contains a more detailed discussion regarding UCC
Article 4A and remittance transfers.
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Remittance transfer providers have also stated that the Final
Rule's fraud exception in Sec. 1005.33(a)(1)(iv)(C) is difficult to
apply in practice because, due to their limited ability to know what
occurs at a recipient's institution, a provider may have difficulty
determining whether the holder of an account into which a transfer was
mis-deposited is attempting to commit a fraud, including by working in
concert with the sender. Although providers do not believe such fraud
is widespread today, they have expressed concerns that the Final Rule
will enable fraudulent activity to flourish because providers may have
to send the transfer amount again without first recovering it from the
foreign institution, which is a departure from current practice.
To the extent remittance transfer providers believe they can
neither verify account numbers nor prevent fraud, many have indicated
that they may limit which of their customers can send remittance
transfers and/or the value of those transfers or even withdraw from the
market altogether. Absent such limitations (or even despite them), some
providers have indicated to the Bureau that they may have difficulties
managing the risk posed by this part of the Final Rule. Particularly
for smaller institutions, the impact of even one large transaction
where the provider would have to resend or refund funds it did not
recover, could be substantial.
That said, the Bureau does harbor some doubts about the extent of
the fraud risk posed by the Final Rule. To be successful, a sender with
fraudulent intent would first need to supply funds for the initial
transfer and then report an error. If the provider claimed that the
sender acted with fraudulent intent, the fraudulent sender would need
to pursue his or her claim in court, something the Bureau believes many
criminals are unlikely to do.
Additionally, the Bureau believes that deposits into the wrong
account resulting from a sender's error that cannot be recovered occur
relatively infrequently today, largely due to three factors. First,
remittance transfer providers typically take steps to ensure that
senders carefully enter and review account numbers. Second, most
incorrect account numbers do not correspond to an actual account at the
recipient's institution. In those situations, the Bureau understands
that the transactions are typically reversed and the funds returned.
Third, the Bureau understands that some recipient institutions take
further measures to limit transfers being deposited into the wrong
account, such as by developing systems that allow for additional
verification of account numbers or by working with senders to improve
accuracy at the time transfers are requested.
Nevertheless, the Bureau understands that the uncertainty created
by existing Sec. 1005.33(a)(1)(iv), if left unchanged, could decrease
consumers' access to remittance transfers if a number of remittance
transfer providers exit the market rather than risk liability, or limit
their service offerings in order to minimize their exposure. Overall,
the Bureau intends for proposed revisions to create appropriate
incentives for providers to prevent these errors from occurring and to
assist senders as much as practicable if an incorrect deposit occurs,
while relieving tension with other laws and existing practice and
reducing risk to providers. The Bureau thus seeks comment on whether
proposed Sec. 1005.33(a)(1)(iv)(D) achieves these goals, or whether
the existing rules or another alternative is preferable.
To clarify the application of this new exception, the Bureau is
also proposing new comment 33(a)-7. Proposed comment 33(a)-7 provides
that the exception in proposed Sec. 1005.33(a)(1)(iv)(D) applies where
a sender gives the remittance transfer provider an incorrect account
number that results in the deposit of the remittance transfer into a
customer's account at the recipient institution other than the
designated recipient's account. The proposed comment further provides
that this exception does not apply
[[Page 77199]]
where the failure to make funds available is the result of a mistake by
a provider or a third party or due to incorrect or insufficient
information other than an incorrect account number.
The Bureau is limiting the scope of proposed Sec.
1005.33(a)(1)(iv)(D) because the Bureau believes that, compared to
other types of sender mistakes, the provision of an incorrect account
number poses unique problems for remittance transfer providers, in that
such incorrect information may result in remittance transfers being
deposited into the wrong account. In particular, the proposed exception
does not include a sender's provision of an incorrect routing number
designating the recipient institution. The Bureau believes that in many
instances, providers either already verify routing numbers or are in a
position to do so when sending transfers to accounts. However, the
Bureau seeks comment on whether the concerns identified above regarding
incorrect account numbers apply equally to incorrect routing numbers,
and if so, whether the proposed exception should be expanded to include
a sender's provision of an incorrect routing number.
Similarly, the Bureau believes that other types of sender mistakes
in connection with transfers to accounts also do not pose the same
risks as incorrect account numbers, because remittance transfers with
other types of mistakes are unlikely to result in a deposit in the
wrong account. Thus, it should be significantly easier for a remittance
transfer provider to unwind the transfer under the existing error
resolution procedures. For example, where a sender misidentifies the
designated recipient or the designated recipient's institution but
provides a correct account number, the Bureau believes that the
remittance transfer is still likely to be deposited into the designated
recipient's account, due to the practice of relying on account numbers
rather than this other information, as described above. Accordingly,
the Bureau does not believe such mistakes by a sender are likely to
result in a deposit into the wrong account or other ``error'' as
defined under the regulation. Nor does the Bureau think that mistakes
by senders in connection with transfers that are not deposited into
accounts pose these problems, because these transfers generally do not
involve unverified information, such as account numbers. Nevertheless,
the Bureau also seeks comment on whether other types of mistakes by
senders pose a similar risk to providers as a mistake in providing an
incorrect account number and whether modified remedies would be
appropriate.
33(a)(2) Types of Inquiries and Transfers Not Covered
Section 1005.33(a)(2) and the accompanying commentary address
circumstances that do not constitute errors in the Final Rule. Section
1005.33(a)(2)(iv) of the Final Rule provides that an error does not
include a change in the amount or type of currency received by the
designated recipient from the amount or type of currency stated in the
disclosure provided to the sender under Sec. 1005.31(b)(2) or (3), if
the remittance transfer provider relied on information provided by the
sender as permitted by the commentary accompanying Sec. 1005.31 in
making such disclosure. Comment 33(a)-8 of the Final Rule provides two
illustrative examples, including that, where a provider relies on the
sender's representations regarding variables that affect the amount of
taxes imposed by a person other than the provider for purposes of
determining these taxes, the change in the amount of currency the
designated recipient actually receives due to the taxes actually
imposed does not constitute an error.
Given the proposed revisions to Sec. 1005.31(b)(1)(vi) and the
accompanying commentary, the proposed rule would make consistent
revisions to Sec. 1005.33(a)(2)(iv) and comment 33(a)-8 (redesignated
as comment 33(a)-9) and other non-substantive revisions for clarity.\8\
As revised, Sec. 1005.33(a)(2)(iv) would add that there is no error if
there is a change in the amount or type of currency received by the
designated recipient from the amount or type of currency stated in the
disclosure provided to the sender under Sec. 1005.31(b)(2) or (3)
because the provider did not disclose foreign taxes other than those
imposed by a country's central government.
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\8\ In light of new proposed comment 33(a)-7 (discussed above),
existing comment 33(a)-7 and 33(a)-8 are proposed to be redesignated
as comments 33(a)-8 and -9, respectively.
---------------------------------------------------------------------------
Revised comment 33(a)-9 would explain that under Sec.
1005.31(b)(1)(vi), providers need not disclose regional, provincial,
state, or other local foreign taxes. Further, under the commentary
accompanying Sec. 1005.31, the remittance transfer provider may rely
on the sender's representations in making certain disclosures. The
revised comment would explain that any discrepancy between the amount
disclosed and the actual amount received resulting from the provider's
reliance upon these provisions does not constitute an error under Sec.
1005.33(a)(2)(iv). The proposed comment would revise the illustrative
example to explain that, if the provider relies on the sender's
representations regarding variables that affect the amount of recipient
institution fees or taxes imposed by a person other than the provider
for purposes of determining fees or taxes required to be disclosed
under Sec. 1005.31(b)(1)(vi), or does not disclose regional,
provincial, state, or other local foreign taxes, as permitted by Sec.
1005.31(b)(1)(vi), the change in the amount of currency the designated
recipient actually receives due to the recipient institution fees or
foreign taxes actually imposed does not constitute an error. The
proposed revision to the comment also makes conforming changes to
internal cross-references and other minor, non-substantive edits for
clarity.
33(c) Time Limits and Extent of Investigation
33(c)(2) Remedies
Section 1005.33(c)(2) implements EFTA section 919(d)(1)(B) and
establishes procedures and remedies for correcting an error under the
rule. In particular, where there has been an error under Sec.
1005.31(a)(1)(iv) for failure to make funds available to a designated
recipient by the disclosed date of availability, Sec.
1005.33(c)(2)(ii) permits a sender to choose either: (1) to obtain a
refund of the amount tendered in connection with the remittance
transfer that was not properly transmitted, or an amount appropriate to
resolve the error, or (2) to have the remittance transfer provider
resend to the designated recipient the amount appropriate to resolve
the error, at no additional cost to the sender or designated recipient.
See Sec. Sec. 1005.33(c)(2)(ii)(A). However, if the error resulted
from the sender providing incorrect or insufficient information, Sec.
1005.33(c)(2)(ii)(A)(2) permits third party fees to be imposed for
resending the remittance transfer with the corrected information.
Comment 33(c)-2 in the Final Rule provides additional guidance
regarding remedies in circumstances where a remittance transfer
provider's failure to make funds available to a designated recipient by
the disclosed date of availability occurred because the sender provided
incorrect or insufficient information in connection with the transfer.
The comment then gives, as one example of incorrect or insufficient
information provided by a sender, a sender erroneously identifying the
recipient's account number. In light of
[[Page 77200]]
the proposal to revise the definition of ``error'' in Sec.
1005.33(a)(1)(iv), proposed comment 33(c)-2 removes this example, and
replaces it with examples of a sender erroneously identifying the
designated recipient's address or by providing insufficient information
to enable the entity distributing the funds to identify the correct
designated recipient.\9\ As with existing comment 33(c)-2, the Bureau
does not intend proposed comment 33(c)-2 to contain an exhaustive list
of incorrect or insufficient information that a sender could provide or
fail to provide. The Bureau is also proposing language, in accordance
with proposed Sec. 1005.33(a)(1)(iv)(D), to clarify that a sender does
not provide incorrect or insufficient information if the sender
provides an incorrect account number that results in a mis-deposit and
the provider has satisfied the requirements of Sec. 1005.33(h).
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\9\ As noted below, while the Bureau does not believe that other
mistakes by a sender are likely to result in a mis-deposit, other
mistakes, such as an incorrect recipient address, still could
prevent a transfer from being completed.
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In addition, existing comment 33(c)-2 also explains the procedure
for resending funds when an error occurred due to incorrect or
insufficient information provided by the sender. The procedure
explained in comment 33(c)-2 is distinct from the procedure used for
all other situations in which funds are to be resent to resolve an
error. For most of these other errors, comment 33(c)-3 explains that
the resend is to occur at no additional cost to the sender and that the
provider is to apply the same exchange rate, fees and taxes stated in
the disclosure provided under Sec. 1005.31(b)(2) or (3). By contrast,
existing comment 33(c)-2 explains that for errors under Sec.
1005.33(a)(1)(iv), where the error occurred due to incorrect or
insufficient information provided by the sender, a request to resend is
a request for a remittance transfer, that the provider must provide the
disclosures required by Sec. 1005.31 for a resend, and that the
provider must use the exchange rate it is using for such transfers on
the date of the resend if funds were not already exchanged in the first
unsuccessful remittance transfer attempt.
Since the Bureau issued the Final Rule, industry has requested more
guidance as to the timing and content of the disclosures that must be
provided for resends following errors that occurred because a sender
provided incorrect or insufficient information. Specifically, industry
has asked how to provide disclosures where a sender either designates a
remedy at the time that the sender reports the error or never
designates a remedy, particularly in situations where the provider does
not make direct contact with the sender when providing a Sec.
1005.33(c)(1) report.\10\
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\10\ Section 1005.33(c)(1) requires a remittance transfer
provider to report the results to the sender of the provider's
investigation into a reported error. This report, which may be
provided orally, must include notice of any remedies available for
correcting any error that the provider determines has occurred.
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In addition, as originally adopted, comment 33(c)-2 has created
uncertainty for remittance transfer providers, as it does not provide
guidance on how or when to provide the Sec. 1005.31 disclosures to
senders, how providers can reasonably ensure the accuracy of the
disclosures to the extent providers must disclose and guarantee an
exchange rate for the resend, and how providers should administer
senders' cancellation rights. Specifically, the Final Rule may not have
adequately addressed potential operational tensions between the timing
and accuracy provisions in Sec. Sec. 1005.31(e) and (f), as referenced
in comment 33(c)-2, and comments 33(c)-3 and 33(c)-4. Comment 33(c)-3
explains that a sender may designate a remedy when first reporting an
error, while comment 33(c)-4 explains that a provider may implement a
default remedy if a sender does not select one. To address these
issues, the proposed rule proposes additional revisions to comment
33(c)-2, adds proposed Sec. 1005.33(c)(3), which provides for
streamlined disclosures, and adds new comment 33(c)-11 explaining the
proposed provision.
First, the Bureau proposes to make additional revisions to comment
33(c)-2. As noted, the existing comment states that a request to resend
is a request for a remittance transfer and, therefore, that a
remittance transfer provider must provide the disclosures required by
Sec. 1005.31 for a resend of a remittance transfer. Further, the
comment states that the provider must use the exchange rate it is using
for such transfers on the date of the resend if funds were not already
exchanged in the first unsuccessful remittance transfer attempt. The
proposed revision deletes the bulk of these references, retaining only
the language stating that a provider should use the exchange rate on
the date of the resend when resending the funds and clarifies that this
is only necessary to the extent currency must be exchanged when
resending the funds. The Bureau also proposes to revise a corresponding
reference in Sec. 1005.33(c)(2)(ii)(A)(2).
Second, in lieu of the above-referenced language in comment 33(c)-2
that states that a request to resend is a request for a remittance
transfer, the Bureau proposes to add new Sec. 1005.33(c)(3). Proposed
Sec. 1005.33(c)(3) provides that if an error under Sec.
1005.33(a)(1)(iv) occurred because the sender provided incorrect or
insufficient information, and if the sender has not previously
designated a refund remedy pursuant to Sec. 1005.33(c)(2)(ii)(A)(1),
then the provider must comply with Sec. 1005.33(c)(3)(i) or
(c)(3)(ii).
Proposed Sec. 1005.33(c)(3)(i) provides that if the remittance
transfer provider does not make direct contact with the sender when
providing the report required by Sec. 1005.33(c)(1), the provider
shall provide, orally or in writing, as applicable, the following
disclosures: (A) The disclosures required by Sec. Sec.
1005.31(b)(2)(i) through (iii) for remittance transfers and the date
the provider will complete the resend, using the term ``Transfer Date''
or a substantially similar term.\11\ These disclosures must be accurate
when the resend is made except that these disclosures may contain
estimates to the extent permitted by Sec. 1005.32(a) or (b) for
remittance transfers; and (B) If this transfer is scheduled three or
more business days before the date of transfer, a statement about the
rights of the sender regarding cancellation reflecting the requirements
of Sec. 1005.36(c), the requirements of which shall apply to the
resend. Proposed Sec. 1005.33(c)(3)(ii) provides that if the provider
makes direct contact with the sender at the same or after the provider
provides the report required by Sec. 1005.33(c)(1), the provider shall
provide, orally or in writing, as applicable, the disclosures required
by Sec. Sec. 1005.31(b)(2)(i) through (iii) for remittance transfers.
These disclosures must be accurate when the resend is made except that
the disclosures may contain estimates to the extent permitted by Sec.
1005.32(a), (b)(1), or proposed Sec. 1005.32(b)(3) or (b)(4) for
remittance transfers.
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\11\ Section 1005.31(b)(2)(i) requires all of the applicable
disclosures contained in the prepayment disclosure (Sec.
1005.31(b)(1)), (b)(2)(ii) requires disclosure of the date in the
foreign country on which funds will be available, and (b)(2)(iii)
requires disclosure of the name, and if provided by the sender,
address of the designated recipient.
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The Bureau expects that proposed Sec. 1005.33(c)(3) and the
proposed changes to the commentary would facilitate compliance in a
number of ways. First, if remittance transfer providers are unable to
directly contact the sender when providing the error report, the
transfer date would generally be set in the future and the provider
[[Page 77201]]
would be permitted to disclose an estimated exchange rate pursuant to
Sec. 1005.32(b)(2). Second, once the disclosure was delivered, the
provider need not provide anything additional to the sender. Third, the
cancellation rules of Sec. 1005.34(a), which otherwise would allow the
sender thirty minutes to cancel the resend, would not apply (though, in
certain cases, the alternate cancellation rule in Sec. 1005.36(c)
would apply).
At the same time, the proposed changes would ensure that senders
receive notice and an ability to cancel in cases in which the exchange
rate that would be applied to the resent remittance transfer is not the
rate that was initially disclosed to the sender (even if the sender has
already chosen to have the funds resent).\12\ The Bureau believes this
would be helpful to consumers and consistent with the intent of the
original comment. For this reason, the Bureau is adapting, in proposed
Sec. 1005.33(c)(3)(i), the procedures used in Sec. 1005.36 for
remittance transfers scheduled before the date of transfer. The Bureau
believes the proposed revisions will balance senders' interests in
obtaining notice in situations where the exchange rate may change with
their interest in swift error resolution. The proposal would, for
example, permit providers to leave phone messages, or to mail, or email
the required disclosures. Under the Final Rule, this may have been
impracticable because of the need to provide an exact exchange rate and
to determine when the sender's right to cancel begins and ends.
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\12\ As proposed, disclosures would be required by proposed
Sec. 1005.33(c)(3) even if the rate that would be disclosed in
connection with the resend happens to be the same rate that was
initially disclosed to the sender. Furthermore, in addition to
providing estimates pursuant to Sec. 1005.32(b)(2), proposed Sec.
1005.33(c)(3)(i) permits providers to disclose estimates pursuant to
Sec. 1005.32(a), (b)(1), and proposed Sec. 1005.32(b)(3) and
(b)(4).
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Proposed Sec. 1005.33(c)(3)(i) will allow remittance transfer
providers to set a future date of transfer, and to disclose estimates
pursuant to Sec. 1005.32(b)(2) if the provider does not make direct
contact with the sender.\13\ A sender would be able to cancel the
remittance transfer once the sender received the Sec. 1005.33(c)(1)
and (3)(i) notices, up to three business days before the date of
transfer. However, the revised disclosure regime would not indefinitely
delay the resend beyond the date of transfer if the provider does not
receive confirmation from the sender and either the default remedy was
to resend, or the sender elected resend when reporting the error. Where
the provider does make direct contact, proposed Sec. 1005.33(c)(3)(ii)
would require the provider to disclose the exchange rate used for
remittance transfers on the date of the resend.
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\13\ Section 1005.32(b)(2) permits a remittance transfer
provider to estimate certain information in the pre-payment
disclosure and the receipt provided when payment is made for a
remittance transfer. Pursuant to Sec. 1005.32(d), an estimated
exchange rate in this circumstance generally must be based on the
exchange rate that the provider would have used or did use that day
in providing disclosures to a sender requesting such a remittance
transfer to be made on the same day.
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The Bureau is not proposing to require the disclosures in proposed
Sec. 1005.33(c)(3) every time a remittance transfer provider resends
funds when remedying an error. Rather, the Bureau intends that
disclosures pursuant to proposed Sec. 1005.33(c)(3) are only required
if the exchange rate used for the resent remittance transfer is not the
exchange rate originally disclosed and currency must be exchanged to
complete the resend. Moreover, a resend under this proposed provision
can only occur when the error occurred due to incorrect or insufficient
information provided by the sender.
The Bureau is also proposing a conforming change to Sec.
1005.33(c)(2), to allow for situations in which proposed Sec.
1005.33(c)(3)(i) permits resends to occur later than one business day
after, or as soon as reasonably practicable, after receiving the
sender's instructions or the provider determines an error had occurred.
Separately, the Bureau notes that in the Final Rule, Sec.
1005.33(c)(2)(ii)(A)(2) allows a provider to impose third party fees
for resending the remittance transfer when an error occurred because
the sender provided incorrect or insufficient information. The Bureau
seeks comment on whether the provider should also be permitted to also
impose taxes incurred when resending funds for the same reason.
Finally, proposed comment 33(c)-11 explains that the disclosures in
proposed Sec. 1005.33(c)(3) need not be provided either if the sender
has elected a refund remedy or if the remittance transfer provider's
default remedy is a refund and the sender has not selected a remedy
prior to the time the provider is providing the Sec. 1005.33(c)(1)
report. Furthermore, to the extent that the resend is not properly
transmitted, the initial error has not been resolved and the provider's
duty to resolve it remains not fully satisfied. Proposed comment 33(c)-
11.i further clarifies that, for purposes of determining the date of
transfer for disclosures made in accordance with proposed Sec.
1005.33(c)(3)(i), if the provider is unable to speak to or otherwise
make direct contact with the sender, the provider may use the same date
on which it would provide a default remedy (i.e. one business day after
10 days after the provider has sent the report provided under Sec.
1005.33(c)(1)). See comment 33(c)-4. Proposed comment 33(c)-11.ii
explains that if the provider makes direct contact with the sender at
the same time or after providing the report required by Sec.
1005.33(c)(1), and if the time to cancel a resend disclosed pursuant to
Sec. 1005.33(c)(3)(i)(B) has not passed, Sec. 1005.33(c)(2) requires
the provider to resend the funds the next business day or as soon as
reasonably practicable thereafter if the sender elects a resend remedy.
For such a resend, the provider must provide the disclosures required
by proposed Sec. 1005.33(c)(3)(ii) and use the exchange rate it is
using for such transfers on the date of resend to the extent that
currency must be exchanged when resending funds. When providing
disclosures pursuant to proposed Sec. 1005.33(c)(3)(ii), the provider
need not allow the sender to cancel the resend.
To illustrate, assume that when an error is first reported, a
sender elects to have the remittance transfer provider resend the funds
should an error be found to have occurred. Upon completion of the
investigation, the provider provides an oral or written report on
February 1, in accordance with Sec. 1005.33(c)(1), informing the
sender that an error occurred and that it was a result of incorrect
information provided by the sender, that currency must be exchanged on
the resend, and thus the exchange rate may change. At the same time and
if no direct contact is made, pursuant to proposed Sec.
1005.33(c)(3)(i), the provider will also deliver notice that it will
resend the remittance transfer on February 12 (assuming that is a
business day) and that a sender's request to cancel must be received by
three business days prior to the date of transfer. If necessary, the
provider also would disclose the estimated exchange rate pursuant to
Sec. 1005.32(b)(2), among other required items. Any time before
February 9 (the deadline to exercise cancellation rights), the sender
may contact the provider and request that the remittance transfer be
completed within one business day, if reasonably possible. If earlier
resend occurs, the provider will then provide the disclosures required
by proposed Sec. 1005.33(c)(ii). If the sender does not contact the
provider, the funds will be resent, as disclosed, on February 12.
The Bureau seeks comment on whether, in lieu of the proposed regime
outlined above, the Bureau should adjust the procedure for resending
funds
[[Page 77202]]
to resolve an error described in Sec. 1005.33(a)(1)(iv) that occurred
because the sender provided incorrect or insufficient information
(other than an incorrect account number). In adopting the Final Rule,
the Bureau explained that when the sender providing incorrect or
insufficient information causes the error, the Bureau believed that it
is appropriate generally to put the provider and the sender in the same
position as if the first unsuccessful remittance transfer had never
occurred. Thus, the provider would use the exchange rate it is using
for such transfers on the date of the resend. Nevertheless, the Bureau
seeks comment on whether it would be preferable to adopt instead the
resend procedure that exists for other errors, see Sec.
1005.33(c)(2)(ii)(A)(1), or another alternative. Using the procedure
for other errors would require a provider to resend funds at the
original exchange rate, but it could further simplify the rule by
eliminating the need to provide disclosures required by proposed Sec.
1005.33(c)(3).
33(h) Incorrect Account Number Provided by the Sender
The Bureau proposes to add a new Sec. 1005.33(h), which would
contain the conditions a remittance transfer provider must satisfy
before the new exception to the definition of error in proposed Sec.
1005.33(a)(1)(iv)(D) could apply to situations in which a sender
provides a wrong account number, which results in a mis-deposit.
Proposed Sec. 1005.33(h) provides that no error has occurred pursuant
to Sec. 1005.33(a)(1)(iv) for the failure to make funds available to a
designated recipient by the date of availability stated in the
disclosure provided pursuant to Sec. 1005.31(b)(2) or (3) if the
provider can satisfy each of the conditions in proposed Sec. Sec.
1005.33(h)(1) through (4).
Proposed Sec. 1005.33(h)(1) provides the first condition that must
be met for no error to have occurred pursuant to proposed Sec.
1005.33(a)(1)(iv)(D). Specifically, this condition could be satisfied
if the remittance transfer provider can demonstrate that the sender
provided an incorrect account number to the provider in connection with
the remittance transfer. Under proposed Sec. 1005.33(h)(1), if the
provider did not know or could not demonstrate that the sender provided
an improper account number, then the failure to deliver the transfer by
the promised date of availability because of an incorrect account
number would continue to be an error to which existing error procedures
and remedies would apply. The Bureau does not believe that this is a
substantial change from the existing rule, which already provides an
incentive for providers to document whether the sender has provided
inaccurate information in order to invoke the ability to charge certain
related fees in connection with the resent transaction. See Sec.
1005.33(c)(2)(ii)(A)(2). The Bureau does believe, however, that this
proposed change further incentivizes providers to implement procedures
to limit the possibility of a sender providing an incorrect account
number.
Proposed Sec. 1005.33(h)(2) contains the second condition, which
is that the remittance transfer provider be able to demonstrate that
the sender had notice that, in the event the sender provided an
incorrect account number, that the sender could lose the transfer
amount. The Bureau believes it is important for senders to be notified
that they could potentially be required to bear the cost of providing
an incorrect account number. The Bureau understands that many
providers' current practices incorporate such a notice to senders in
their disclosures in connection with their obligation under UCC Article
4A. In particular, under UCC 4A-207, a sender cannot bear the cost of a
mistake if the provider did not notify the sender that the payment on
the transfer order might be made even if the sender's account number
specifies a person different from the named beneficiary. The UCC does
not specify the form of the notice. See UCC 4A-207(c)(2). The Bureau
similarly has not specified the form of the notice required by proposed
Sec. 1005.33(h)(2) but seeks comment on whether the Bureau should
specify the form of the notice and how and when it should be delivered.
Proposed Sec. 1005.33(h)(3) provides the third condition for the
exception in proposed Sec. 1005.33(a)(1)(iv)(D) to apply. It provides
that the incorrect account number resulted in the deposit of the
remittance transfer into a customer's account at the recipient
institution other than the designated recipient's account. The Bureau
believes that once a remittance transfer is deposited into the wrong
account, a remittance transfer provider is much less likely to be able
to recover the funds. The Bureau does not believe that similar concerns
exist for transfers that are sent to accounts and are either rejected
by the recipient institution or otherwise reversed before deposit. In
such cases, the Bureau believes that the provider would be much more
likely to be able to recover the funds and either refund or resend the
transfer and the proposed exception in proposed Sec.
1005.33(a)(1)(iv)(D) would be unnecessary.
Proposed Sec. 1005.33(h)(4) provides the fourth condition for the
exception in proposed Sec. 1005.33(a)(1)(iv)(D) to apply. It states
that a remittance transfer provider to promptly use reasonable efforts
to recover the amount that was to be received by the designated
recipient. Currently, the Bureau believes that as a customer service,
many providers attempt to recover transfers even when they are not
transfer deposited into the correct account. Thus, the Bureau does not
believe proposed Sec. 1005.33(h)(4) constitutes a significant
departure from market practice in many cases today.
Proposed comment 33(h)-1 explains that proposed Sec. 1005.33(h)(4)
requires a remittance transfer provider to use reasonable efforts to
recover the amount that was to be received by the designated recipient.
Whether a provider has used reasonable efforts does not depend on
whether the provider is ultimately successful in recovering the amount
that was to be received by the designated recipient. The proposed
comment accounts for the fact that the options available to a provider
to recover funds may vary depending on the method used to send the
remittance transfer, the destination of the remittance transfer, the
provider's relationship with the receiving institution, and when and by
whom the error was discovered. The proposed comment also provides
examples of how a provider might use reasonable efforts: (i) The
provider promptly calls or otherwise contacts the recipient's
institution, either directly or indirectly through any correspondent(s)
or other intermediaries or service providers used for the particular
transfer, to request that the amount that was to be received by the
designated recipient be returned, and if required by law or contract,
by requesting that the recipient institution obtain a debit
authorization from the incorrectly credited accountholder; (ii) the
provider promptly uses a messaging service through a funds transfer
system to contact the recipient's institution, either directly or
indirectly through any correspondent(s) or other intermediaries or
service providers used for the particular transfer, to request that the
amount that was to be received by the designated recipient be returned,
in accordance with the messaging service's rules and protocol, and if
required by law or contract, by requesting that the recipient
institution obtain a debit authorization from the holder of the
incorrectly credited account; and (iii) in addition to the methods
outlined above, to the extent that a correspondent institution, other
service providers to
[[Page 77203]]
the recipient institution, or the recipient institution requests
documentation or other supporting information, the provider promptly
provides such documentation or other supporting information to the
extent available.
The Bureau does not believe it is appropriate to propose specific
methods that a remittance transfer provider must use to recover the
funds due to the varying ways in which providers and other institutions
communicate. For example, in many instances, financial institutions
might use correspondent networks to send remittance transfers to
designated recipients' accounts abroad. In these instances, the
provider, its correspondent institution, other intermediary
institutions, and possibly the recipient institution may communicate
through a shared messaging system. It is through this system that a
provider might attempt to recover a mis-deposited remittance transfer.
In this circumstance, mandating other efforts--such as directly
contacting the recipient's institution--might not be as feasible or
productive, although in some instances, a provider might determine it
to be reasonable to contact the foreign institution directly. The
Bureau solicits comment on the proposed examples and whether there are
additional examples of how a provider might use reasonable efforts to
recover funds.
Finally, proposed comment 33(h)-2 explains that Sec. 1005.33(c)(1)
requires a remittance transfer provider to act promptly in using
reasonable efforts to recover the amount that was to be received by the
designated recipient. While promptness may depend on the circumstances,
generally a provider acts promptly when it does not delay in seeking
recovery of the mis-deposited funds. For example, if the sender informs
the provider of the error before the date of availability disclosed
pursuant to Sec. 1005.31(b)(2)(ii), the provider should act to contact
the recipient's institution before the date of delivery, if possible,
as doing so may prevent the funds from being mis-deposited. In other
circumstances as well, prompt reasonable efforts will increase the
chances that the funds remain in the incorrect account. Generally, the
Bureau believes that providers will be more successful in securing the
return of mis-deposited funds if providers act quickly.
Miscellaneous Conforming Edits
Given the proposed revisions to Sec. 1005.31(b)(1)(vi) and new
proposed Sec. Sec. 1005.32(b)(3) and (4), conforming revisions are
proposed in the following provisions of the Final Rule as necessary:
Sec. 1005.36(b)(3); comment 32-1; comment 32(d)-1; comment 33(a)-3.ii;
and comment 36(b)-3.
Effective Date
The Final Rule is scheduled to be effective on February 7, 2013,
which is one year after publication of the February Final Rule in the
Federal Register. However, in light of this proposal, the Bureau is
proposing to extend the effective date in two steps.
First, the Bureau is proposing to temporarily delay the effective
date of the Final Rule until the Bureau finalizes this proposal. The
Bureau realizes that regardless of how or whether the Final Rule is
changed, remittance transfer providers' preparations for its
implementation may be affected until the Bureau finalizes the rule. The
Bureau seeks comment on the proposal to temporarily delay the effective
date of the Final Rule, by issuing a temporary extension before
February 7, 2013. The Bureau requests comment on this aspect of the
proposed rule only by January 15, 2013.
Second, the Bureau is also proposing that the Final Rule, and any
revisions thereto resulting from this proposal, would become effective
90 days after the Bureau finalizes this proposal. Given the limited
scope of the proposed revisions, the Bureau believes that this 90-day
period will be sufficient for providers to implement any necessary
changes to their systems. The Bureau also believes that providers
should be working toward implementing those portions of the Final Rule
unaffected by this proposal during the interim period, for instance by
continuing to research foreign central governments' taxes. Thus, the
Bureau believes that, apart from the temporary delay, this proposed 90-
day extension period would balance the need for consumers to receive
the protections afforded by the rule as quickly as possible with
industry's need to make adjustments to comply with the provisions of
the rule. The Bureau seeks comment on whether the rule should be
effective 90 days after the Bureau finalizes this proposal.\14\
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\14\ Comments on this second aspect of the proposal may be
submitted within the comment period applicable to the remainder of
the proposal.
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V. Section 1022(b)(2) Analysis
A. Overview
In developing the proposed rule, the Bureau has considered
potential benefits, costs, and impacts \15\ and has consulted or
offered to consult with the prudential regulators and the Federal Trade
Commission, including regarding the consistency of the proposed rule
with prudential, market, or systemic objectives administered by such
agencies.\16\
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\15\ Section 1022(b)(2)(A) of the Dodd-Frank Act calls for the
Bureau to consider the potential benefits and costs of a regulation
to consumers and covered persons, including the potential reduction
of access by consumers to consumer financial products or services;
the impact on depository institutions and credit unions with $10
billion or less in total assets as described in section 1026 of the
Dodd-Frank Act; and the impact on consumers in rural areas.
\16\ The Bureau also solicited feedback from other agencies
regarding the proposed rule.
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The analysis below considers the benefits, costs, and impacts of
the key provisions of the proposal against the baseline provided by the
Final Rule. Those provisions regard: Recipient institution fees and
foreign taxes, incorrect or insufficient information regarding
transfers, and the effective date. With respect to these provisions,
the analysis considers the benefits and costs to senders (consumers)
and remittance transfer providers (covered persons).\17\ The Bureau has
discretion in future rulemakings to choose the most appropriate
baseline for that particular rulemaking.
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\17\ Benefits and costs incurred by remittance transfer
providers may, in practice, be shared among providers' business
partners, such as agents, correspondent banks, or foreign exchange
providers. To the extent that any of these business partners are
covered persons, the proposal could have benefits or costs for these
covered persons as well.
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The Bureau notes at the outset that quantification of the potential
benefits, costs, and impacts of the proposal is not possible due to the
lack of available data. As discussed in the February Final Rule, there
is a limited amount of data about remittance transfers and remittance
transfer providers that are publicly available and representative of
the full market. Similarly, there are limited data on consumer
behavior, which would be essential for quantifying the benefits or
costs to consumers. Furthermore, the Final Rule is not yet effective
and providers are still in the process of implementing its
requirements. Therefore, the analysis generally provides a qualitative
discussion of the benefits, costs, and impacts of the proposed rule. As
discussed in more detail below, the Bureau expects that the proposed
provisions will generally benefit providers by facilitating compliance,
while maintaining the Final Rule's valuable new consumer protections
and ensuring that these protections can be effectively delivered to
consumers.
[[Page 77204]]
B. Potential Benefits and Costs to Consumers and Covered Persons
1. Recipient Institution Fees and Foreign Taxes
a. Benefits and Costs to Covered Persons
Compared to the Final Rule, the proposal would benefit remittance
transfer providers by giving them options that could reduce the cost of
providing required disclosures. Allowing providers to rely on senders'
representations regarding certain recipient institution fees, or to
estimate such fees and foreign taxes based on certain assumptions or
sources of information would reduce the cost of preparing required
disclosures. The proposal would further reduce the cost of gathering
information by limiting providers' obligation to disclose foreign taxes
to those imposed by a country's central government.
The proposed changes regarding fee and tax disclosures might
additionally benefit remittance transfer providers by facilitating
their continued participation in the market. Industry has suggested
that due in part to the Final Rule's third party fee and foreign tax
disclosure requirements, some providers might eliminate or reduce their
remittance transfer offerings, such as by not sending transfers to
countries where tax or fee information is particularly difficult to
obtain, due to the lack of ongoing reliable and complete information
sources. By reducing the amount of information needed to provide
disclosures, the proposal could encourage more providers to retain
their current services (and thus any associated profit, revenue and
customers).
To take advantage of the new flexibility that would be provided by
the proposed rule, some remittance transfer providers might choose to
bear some modest cost to modify their systems to calculate disclosures
using the new methods permitted by the proposal, or to describe certain
disclosures using the term ``Estimated'' or a substantially similar
term. However, the Bureau believes that any such cost would generally
be small. Any modification would be to existing forms and systems
changes would be particularly minimal for many providers, because the
Final Rule already sets forth certain circumstances in which the term
``Estimated'' or a substantially similar term must be used.
Furthermore, the Bureau expects that some providers may not have
finished any systems modifications necessary to comply with the Final
Rule, and thus may be able to incorporate any changes into previously
planned work.
Any alternative disclosures could also impose costs on any
providers that chose to take advantage of the flexibility permitted by
the proposal. The relative magnitude would depend on the type of
disclosure required. But in any case, these costs would be optional;
providers could disclose fees and taxes as required by the Final Rule.
The Bureau expects that the proposed provisions regarding fee and
tax disclosures would mostly affect depository institutions, credit
unions, and broker-dealers that are remittance transfer providers.
These types of providers tend to send most or all of their remittances
transfers to foreign accounts, for which recipient institution fees may
be charged. Furthermore, due to the mechanisms they use to send money,
they generally have the ability to send transfers to virtually any
destination country (for which tax research might be required). By
contrast, money transmitters that are providers are more likely to send
remittance transfers to be received in cash, for which recipient
institution fees would not be relevant. Furthermore, most money
transmitters, and particularly small ones, generally send transfers to
a limited number of countries and institutions.
b. Benefits and Costs to Consumers
The proposed changes regarding recipient institution fees and
foreign taxes would benefit senders to the extent that remittance
transfer providers pass along any cost savings in the form of lower
prices. Also, if the proposal facilitates providers' continued
participation in the market, it would facilitate senders' access to
remittance transfers, by giving them a wider set of options for sending
transfers, preserving competition, and thus possibly avoiding increased
prices.
The proposal might impose costs on senders to the extent that it
makes disclosures less accurate, or if different remittance transfer
providers were to use substantially different approaches to identifying
the recipient institution fees or foreign taxes that would apply.
Different approaches might make comparison shopping more difficult.
Less accurate information could make it more difficult for a sender to
know whether a designated recipient is going to receive an intended sum
of money, or how much the sender must spend to deliver a specific
amount of foreign currency to a recipient.
However, the Bureau expects that costs associated with reduced
accuracy could be mitigated. First, the Bureau expects that competition
might give providers incentives to disclose exact recipient institution
fees and foreign taxes (at least those assessed by central governments)
when reasonably possible, as in some cases this would allow providers
to disclose lower fees and taxes than they would if they relied on the
proposal's provisions. Second, in circumstances where providers did
take advantage of the flexibility permitted by the proposal, senders
might still be able to engage in comparison shopping. To the extent
that different providers used similar information and assumptions to
estimate foreign taxes and recipient institution fees, the disclosures
that senders received would generally remain useful for determining
which provider is cheapest or for making decisions that trade off cost
for other considerations. Finally, if foreign subnational taxes are
imposed less frequently and in smaller amounts than foreign taxes
assessed by central governments, then the Bureau believes that even
with the proposed changes to the Final Rule, senders generally would
have the most important information about the prices of remittance
transfers. Even though the proposal would allow providers to rely on
fee information that may not be specific to a recipient institution,
the proposal's focus on informing senders of the highest possible
amount of foreign taxes or recipient institution fees that could be
imposed would limit the circumstances in which senders might be
surprised by deductions that are larger than what is disclosed. Senders
would still generally receive a reasonable approximation of the foreign
taxes and recipient institution fees that might be charged, and
sufficient information to help them know whether they are sending
enough money to cover recipients' needs.
The use of the term ``Estimated'' (or a substantially similar term)
in cases in which subnational taxes were not disclosed or the new
estimate provisions are used could aid senders, by indicating that
disclosed amounts may differ from the amount received. But the use of
the term ``Estimated'' in the vast majority of cases could impair
senders' ability to compare disclosures and have an adverse impact on
the exercise of error resolution rights because it is difficult to know
the reasons why two disclosures with estimates differ. In instances in
which subnational taxes were not disclosed, alternative methods of
alerting senders that figures are not exact (or not requiring any such
notice) might impose fewer costs on senders.
[[Page 77205]]
2. Incorrect or Insufficient Information
a. Benefits and Costs to Covered Persons
The proposal includes two sets of proposed changes related to
errors caused by the provision of incorrect or insufficient
information. It would create a new exception to the definition of
error. It would also adjust the requirements for resending remittance
transfers in certain situations in which funds may be resent to correct
errors.
The exception to the definition of error would benefit remittance
transfer providers in instances in which senders' account number
mistakes, which would have resulted in errors under the Final Rule,
would not constitute errors, provided that providers could satisfy the
conditions enumerated in proposed Sec. 1005.33(h). To the extent that
the new exception applied, providers would no longer bear the costs of
funds that they could not recover. The magnitude of the benefit would
depend on the frequency of senders' account number mistakes that result
in funds being deposited in the wrong account with the provider unable
to recover funds, and the sizes of those lost transfers.\18\ The
magnitude would also depend on the extent to which providers maintain
procedures necessary to satisfy the conditions enumerated in proposed
Sec. 1005.33(h).
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\18\ Prior to the February Final Rule, the Credit Union National
Association reported a rate of less than 1% for international wire
``exceptions.''
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Remittance transfer providers might further benefit if the proposal
reduced the potential for fraudulent account number mistakes made by
unscrupulous senders, which providers have cited as a risk under the
Final Rule. By reducing the remedies available in such cases, the
proposal would reduce the direct costs of fraud and the indirect costs
of fraud prevention and facilitate providers' continued participation
in the remittance transfer market, without (or with fewer) new
limitations on service. Industry has indicated that, at least in part,
due to the risk of such fraud under the Final Rule, providers might
exit the market or limit the size or type of transfers sent. The
magnitude of these benefits would depend on the magnitude of the actual
and perceived risk of account number-related fraud under the Final
Rule.\19\
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\19\ A similar analysis regarding benefits would likely apply if
the Bureau expanded the proposed exception to apply in instances in
which a failure to make funds available to the designated recipient
by the disclosed date of availability resulted from a mistake by a
sender other than providing an incorrect account number. Any
optional costs might depend on the nature of any such extension.
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The new exception to the definition of error would not impose any
new requirements on remittance transfer providers and therefore would
not directly impose costs on providers. But, to ensure that they can
satisfy the conditions enumerated in proposed Sec. 1005.33(h) and thus
trigger the new exception, providers may choose to bear some costs. For
instance, providers might change their customer contracts or other
communications to provide to senders the notice contemplated by
proposed Sec. 1005.33(h)(2). However, the Bureau expects that the cost
of doing so would be modest, particularly because the proposed rule
does not mandate any particular notice wording, form, or format, and
the Bureau expects that many providers would integrate any such notice
into existing communications.
The Bureau expects that providers would generally not experience
any other costs if they chose to satisfy the remainder of the
conditions in proposed Sec. 1005.33(h), because their existing
practices generally would already satisfy those conditions. In
particular, based on outreach, the Bureau believes that keeping records
or other documents that could demonstrate the conditions described in
Sec. 1005.33(h) would generally match providers' usual and customary
practices to serve their customers, to manage their risk, and to
satisfy the requirements under the Final Rule to retain records of the
findings of investigations of alleged errors. See Sec. 1005.33(g)(2).
The extent to which remittance transfer providers would choose to
bear any costs related to proposed Sec. 1005.33(h) and the magnitude
of such costs would depend on providers' individual business practices,
their expectations about the frequency and size of transfers that are
deposited into the wrong accounts and not recovered because of account
number mistakes by senders, their expectations about the risk of fraud,
as well as the extent to which providers have already begun adapting
their practices to the Final Rule. The Bureau expects that providers
would only develop their practices to comply with Sec. 1005.33(h) if
doing so would benefit the providers by more than the costs of
implementing these practices. The Bureau believes that this could be
the case for most providers that make transfers to accounts,
particularly because the practices described in Sec. 1005.33(h)
closely match existing practice, as well as, for the most part, the
practices that providers would develop to comply with the Final Rule.
The proposed changes regarding requests to resend for certain
errors would also benefit remittance transfer providers. In instances
in which they are applicable, as discussed above, the proposed changes
would, in many cases, allow a provider to resend a transfer with less
uncertainty about when and how to resend it and possibly to do so using
an estimated exchange rate. The proposed changes also could mean that
in the narrow circumstances in which they would apply, providers would
not need to provide as many written disclosures as under the Final
Rule. Providers could also benefit from the alternative on which the
Bureau is seeking comment, to adjust the Final Rule's remedy provisions
so that anytime a remittance transfer is resent to resolve an error,
the exchange rate would remain the rate stated in the original
disclosure. This alternative would eliminate any cost of additional
disclosures related to the covered resends. Unlike the Final Rule,
however, the alternative would not permit a provider to charge the
sender again for third party fees incurred when the transfer was sent
the first time. Furthermore, the alternative could expose providers to
additional exchange rate risk. When funds are resent, a provider might
either gain or lose money related to the change in market exchange
rates between the time of the original transfer and the time of the
resend.
Either the proposed changes regarding resend remedies, or the
alternative on which the Bureau seeks comment, could impose a cost on
remittance transfer providers to revise their procedures. Providers
might also change their systems to generate the proposed streamlined
disclosures, which could include the date of transfer, an element that
is currently required on disclosures only for some remittance
transfers. See Sec. Sec. 1005.30(b)(2)(vii) and 1005.36(d). However,
the Bureau expects these costs to be modest, because the modifications
could be made based on an existing disclosure form. The Bureau also
expects that many providers would incorporate such modifications into
others they would carry out to comply with the Final Rule.
b. Benefits and Costs to Consumers
The new exception to the definition of error would benefit senders
to the extent that remittance transfer providers pass along any cost
savings in the form of lower prices. The new exception would also
benefit senders, to the extent it would enable more providers to stay
in the market or preserve the breadth of their current offerings, thus
preserving competition.
Under certain conditions, a sender who provided an incorrect
account number resulting in funds being delivered to the wrong account
would
[[Page 77206]]
bear the costs of those mis-deposited funds. However, as discussed
above, the Bureau expects that the incidence of such losses would be
rare; furthermore, any such cost may be mitigated, because senders
would have stronger incentives to ensure the accuracy of account number
information to the extent possible.\20\
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\20\ A similar analysis would likely apply if the Bureau
expanded the proposed exception to apply in instances in which a
failure to make funds available to the designated recipient by the
disclosed date of availability resulted from a mistake by a sender
other than an incorrect account number.
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The Bureau expects that the proposed changes regarding remittance
transfers that are resent would have very small impacts on senders. As
described above, the Bureau expects that the circumstances in which the
proposed changes would apply will arise infrequently. In instances in
which the proposed changes would apply, the Bureau believes that
senders, like remittance transfer providers, would benefit from the
reduced uncertainty. However, the proposed changes would impose a
modest cost on senders because they would reduce the disclosure
requirements for the covered resends, including by allowing providers
to give senders estimated rather than actual exchange rates under
certain circumstances. Senders might experience some additional modest
benefits or costs under the alternative on which comment is sought, to
resend transfers at the original exchange rate. Unlike the Final Rule,
the alternative would not permit a provider to charge the sender again
for any third party fees that were incurred when the transfer was sent
originally. But this alternative would eliminate the requirement for
additional disclosures related to the resend of the transaction.\21\
However, the Bureau expects that under either scenario, and
particularly the latter, the cost would be modest, as senders would
have received pertinent information with the original remittance
transfer.
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\21\ Under this alternative, for any individual remittance
transfer that is resent, a sender (like a remittance transfer
provider) might either gain or lose money related to the change in
market exchange rates between the time of the original transfer and
the time of the resend.
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3. Effective Date
The proposed temporary delay and extension of the Final Rule's
effective date would generally benefit remittance transfer providers by
delaying the start of any ongoing compliance costs. The additional time
might also enable providers (and their vendors) to build solutions that
cost less than those that might otherwise have been possible. Senders
would benefit to the extent that the changes eliminated any disruptions
in the provision of remittance transfer services. But the proposed
changes would impose costs on senders by delaying the time when they
would receive the benefits of the Final Rule.
C. Access to Consumer Financial Products and Services
As discussed above, the Bureau expects that the proposal would not
decrease and could increase consumers' (senders') access to consumer
financial products and services. By reducing the costs that remittance
transfer providers must bear to provide disclosures and resolve errors,
the proposal could lead providers to reduce their prices, compared to
what they might have charged under the Final Rule. By facilitating
providers' participation in the market, the proposal could give senders
a wider set of options for sending transfers, as well as preserve
competition.
D. Impact on Depository Institutions and Credit Unions With $10 Billion
or Less in Total Assets
Given the lack of data on the characteristics of remittance
transfers, the ability of the Bureau to distinguish the impact of the
proposal on depository institutions and credit unions with $10 billion
or less in total assets (as described in section 1026 of the Dodd-Frank
Act) from the impact on depository institutions and credit unions in
general is quite limited. Overall, the impact of the proposal on
depository institutions and credit unions would depend on a number of
factors, including whether they are remittance transfer providers, the
importance of remittance transfers for the institutions, how many
institutions or countries they send to, the cost of complying with the
Final Rule, and the progress made toward compliance with the Final
Rule.
However, information that the Bureau obtained prior to finalizing
the August Final Rule suggests that among depository institutions and
credit unions that provide any remittance transfers, an institution's
asset size and the number of remittance transfers sent by the
institution are positively, though imperfectly, related. There are
several inferences that can be drawn from this relationship. First, the
Bureau expects that among depository institutions and credit unions
with $10 billion or less in total assets that provide any remittance
transfers, compared to larger such institutions, a greater share will
qualify for the safe harbor related to the definition of ``remittance
transfer provider'' and therefore would be entirely unaffected by this
proposal because they are not subject to the requirements of the Final
Rule. See Sec. 1005.30(f)(2). Second, the Bureau believes that
depository institutions and credit unions with $10 billion or less in
total assets that are covered by the Final Rule would experience, on a
per-institution basis, less of the variable benefits and costs
described above because they generally perform fewer remittance
transfers than larger institutions. However, to the extent that the
proposal would reduce any fixed costs of compliance, such as the costs
of gathering information on taxes and fees if these institutions were
to attempt to do that themselves, these institutions may experience
more of the benefits described above, on a per-transfer basis.
Additionally, the Bureau believes that the magnitude of the
proposal's impact on smaller depository institutions and credit unions
would be affected by these institutions' likely tendency to rely on
correspondents or other service providers to obtain third party fee and
foreign tax information, as well as provide standard disclosure forms.
In some cases, this reliance would mitigate the impact on these
providers of the proposal's provisions regarding such information.
E. Impact of the Proposal on Consumers in Rural Areas
Senders in rural areas may experience different impacts from the
proposal than other senders. The Bureau does not have data with which
to analyze these impacts in detail. However, to the extent that the
proposal leads to more remittance transfer providers to continue to
provide remittance transfers, the proposal may disproportionately
benefit senders living in rural areas. Senders in rural areas may have
fewer options for sending remittance transfers, and therefore may
benefit more than other senders from a change that keeps more providers
in the market.
F. Request for Information
The Bureau will further consider the benefits, costs and impacts of
the proposal before finalizing the proposal. The Bureau asks interested
parties to provide comment or data on various aspects of the proposed
rule, as detailed in the section-by-section analysis. This includes
comment or data regarding the number and characteristics of affected
entities and consumers; providers' current practices, their plans to
implement the Final Rule; how this proposal might change their current
practices or their planned practices
[[Page 77207]]
under the Final Rule; and any other portions of this analysis.
The Bureau requests commenters to submit data and to provide
suggestions for additional data to assess the issues discussed above
and other potential benefits, costs, and impacts of the proposed rule.
Further, the Bureau seeks information or data on the proposed rule's
potential impact on consumers in rural areas as compared to consumers
in urban areas. The Bureau also seeks information or data on the
potential impact of the proposed rule on depository institutions and
credit unions with total assets of $10 billion or less as described in
Dodd-Frank Act section 1026 as compared to depository institutions and
credit unions with assets that exceed this threshold and their
affiliates.
VI. Regulatory Flexibility Act
A. Overview
The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct an initial regulatory flexibility analysis (IRFA) and a
final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities. The Bureau also is subject to
certain additional procedures under the RFA involving the convening of
a panel to consult with small business representatives prior to
proposing a rule for which an IRFA is required. 5 U.S.C. 609.
An IRFA is not required for this proposal because the proposal, if
adopted, would not have a significant economic impact on a substantial
number of small entities.
B. Affected Small Entities
The analysis below evaluates the potential economic impact of the
proposed rule on small entities as defined by the RFA.\22\ The proposal
would apply to entities that satisfy the definition of ``remittance
transfer provider'': Any person that provides remittance transfers for
a consumer in the normal course of its business, regardless of whether
the consumer holds an account with such person. See Sec.
1005.30(f).\23\ Potentially affected small entities include insured
depository institutions and credit unions that have $175 million or
less in assets and that provide remittance transfers in the normal
course of their business, as well as non-depository institutions that
have average annual receipts that do not exceed $7 million and that
provide remittance transfers in the normal course of their
business.\24\ These affected small non-depository entities may include
state-licensed money transmitters, broker-dealers, and other money
transmission companies.\25\
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\22\ For purposes of assessing the impacts of the proposed rule
on small entities, ``small entities'' is defined in the RFA to
include small businesses, small not-for-profit organizations, and
small government jurisdictions. 5 U.S.C. 601(6). A ``small
business'' is determined by application of Small Business
Administration regulations and reference to the North American
Industry Classification System (``NAICS'') classifications and size
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small
governmental jurisdiction'' is the government of a city, county,
town, township, village, school district, or special district with a
population of less than 50,000. 5 U.S.C. 601(5).
\23\ The definition of ``remittance transfer provider'' includes
a safe harbor that means that if a person provided 100 or fewer
remittance transfers in the previous calendar year and provides 100
or fewer such transfers in the current calendar year, it is deemed
not to be provided remittance transfers for a consumer in the normal
course of its business, and is thus not a remittance transfer
provider. See Sec. 1005.30(f)(2).
\24\ Small Bus. Admin., Table of Small Business Size Standards
Matched to North American Industry Classification System Codes,
http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. Effective March 26, 2012.
\25\ Many state-licensed money transmitters act through agents.
However, the Final Rule applies to remittance transfer providers and
explains, in official commentary, that a person is not deemed to be
acting as a provider when it performs activities as an agent on
behalf of a provider. Comment 30(f)-1. Furthermore, for the purpose
of this analysis, the Bureau assumes that providers, and not their
agents, will assume any costs associated with implementing the
proposed modifications.
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This analysis examines the benefits, costs, and impacts of the key
provisions of the proposal relative to the baseline provided by the
Final Rule. The Bureau has discretion in future rulemakings to choose
the most appropriate baseline for that particular rulemaking.
C. Recipient Institution Fees and Foreign Taxes
The proposal would provide remittance transfer providers additional
flexibility regarding the disclosure of certain recipient institution
fees and foreign taxes. It would allow providers to rely on senders'
representations regarding such fees, and to estimate such fees and
foreign taxes based on certain assumptions and information. The
proposal would also limit a provider's obligation to disclose foreign
taxes to those imposed by a country's central government. Under the
proposal, if providers chose not to disclose subnational taxes, or to
take advantage of the new estimation provisions, they would be required
to describe the relevant disclosures using the term ``Estimated'' or a
substantially similar term.
The proposed provisions would not require small entities to make
any changes in practice. Remittance transfer providers would still be
in compliance if they disclosed foreign taxes and recipient institution
fees in accordance with the Final Rule. If small providers decided to
take advantage of the proposed provisions, they might bear some cost to
modify their systems to calculate disclosures using the new methods
permitted by the proposal, or to describe certain disclosures using the
term ``Estimated'' or a substantially similar term. However, the Bureau
believes that any cost would generally be small. Any modification would
be to existing forms and systems changes would be particularly minimal
because the Final Rule already sets forth certain circumstances in
which the term ``Estimated'' (or a substantially similar term) must be
used. Also, the Bureau expects that many small depository institutions
and credit unions will rely on correspondent institutions or other
service providers to provide recipient institution fees and foreign tax
information, as well as standard disclosure forms; as a result, related
costs would often be spread across multiple institutions. Furthermore,
the Bureau expects that some providers may not have finished any
systems modifications necessary to comply with the Final Rule, and thus
may be able to incorporate any changes into previously planned work.
Any alternative disclosures could also impose cost on any providers
that chose to take advantage of the flexibility permitted by the
proposal. The relative magnitude would depend on the type of disclosure
required. If no disclosure were required in instances in which foreign
subnational taxes were not disclosed, the cost could be less for some
entities. If some alternative form of disclosure were required for
providers that chose to take advantage of the new flexibility that the
proposal would permit, the cost might be higher.
In either case, the proposed changes regarding the disclosure of
recipient institution fees and foreign taxes may provide meaningful
benefits to remittance transfer providers that decide to take advantage
of them. The Bureau expects that small entities generally would choose
to incur the costs associated with the proposed provisions only if they
concluded that the benefits of doing so were greater than the costs.
The potential benefits include a reduced cost to prepare required
disclosures. Furthermore, industry has suggested that due in part
[[Page 77208]]
to the Final Rule's third party fee and foreign tax disclosure
requirements, some providers might eliminate or reduce their remittance
transfer offerings, such as by not sending to countries where tax or
fee information is particularly difficult to obtain, due to the lack of
ongoing reliable and complete information sources. By reducing the
amount of information needed to provide disclosures, the proposal could
encourage more providers (including small entities) to retain their
current services (and thus any associated profit, revenue and
customers).
The Bureau expects that the proposed provisions would mostly affect
depository institutions, credit unions, and broker-dealers that are
remittance transfer providers. These types of providers tend to send
most or all of their remittances transfers to foreign accounts, for
which recipient institution fees may be charged. Furthermore, due to
the mechanisms they use to send money, they generally have the ability
to send transfers to virtually any destination country (for which tax
research might be required). By contrast, money transmitters that are
providers are more likely to send remittance transfers to be received
in cash, for which recipient institution fees would not be relevant.
Furthermore, most money transmitters, and particularly small ones,
generally send transfers to a limited number of countries and
institutions.
D. Incorrect or Insufficient Information
The proposal includes two sets of proposed changes related to
errors caused by the provision of incorrect or insufficient
information. It would create a new exception to the definition of the
error. It would also streamline the requirements for resending
remittance transfers in certain situations in which funds may be resent
to correct errors.
The Bureau expects that a number of small remittance transfer
providers would be unaffected by the proposed changes regarding the
definition of error; they would only apply to remittance transfers that
are received in accounts. Though some money transmitters send money to
be deposited into bank accounts, the Bureau's outreach suggests that,
unlike most small depository institutions, credit unions, and broker-
dealers, many small money transmitters only send money to be received
in cash.
With regard to small remittance transfer providers that do send
money to accounts, the proposed new exception to the definition of
error would not impose any mandatory costs. Under the proposal, certain
account number mistakes would no longer generate ``errors'' if the
provider satisfied certain conditions enumerated in proposed Sec.
1005.33(h). Instead of satisfying these conditions, providers could
continue under the Final Rule's definition of error.
If remittance transfer providers did choose to satisfy the
conditions enumerated in proposed Sec. 1005.33(h), they might incur
some costs, such as changing the terms of their consumer contracts or
other communications to provide senders the notice contemplated by
proposed Sec. 1005.33(h)(2). However, the Bureau expects that the cost
of doing so would be modest, particularly because the proposed rule
does not mandate any particular notice wording, form, or format, and
the Bureau expects that many providers would integrate any such notice
into existing communications.
The Bureau believes that satisfying the remainder of the conditions
in proposed Sec. 1005.33(h) would not impose new costs on providers
because their existing practices generally would already satisfy those
conditions. In particular, based on outreach, the Bureau believes that
that keeping records or other documents that could demonstrate the
conditions described in Sec. 1005.33(h) would generally match
providers' usual and customary practices to serve their customers, to
manage their risk, and to satisfy the requirements under the Final Rule
to retain records of the findings of investigations of alleged errors.
See Sec. 1005.33(g)(2).
In any case, the Bureau expects that remittance transfer providers
would only develop their practices to comply with Sec. 1005.33(h), and
thus take advantage of the proposed new exception to the definition of
error, if doing so would reduce the costs of losses due to account
number mistakes by senders or account number fraud by more than the
costs of implementing these practices. The Bureau believes that for
most providers, including small ones, the proposed changes to the
definition of error likely would provide benefits that outweigh
implementation costs. If the new exception applied, providers would no
longer bear the cost of funds that they could not recover. Providers
would further benefit if the proposal reduced the potential for
fraudulent account number mistakes made by unscrupulous senders, which
providers have cited as a risk under the Final Rule. By reducing the
remedies available in such cases, the proposal would reduce the direct
costs of fraud and the indirect costs of fraud prevention and
facilitate providers' continued participation in the remittance
transfer market, without (or with fewer) new limitations on service.
Industry has indicated that, at least in part, due to the risk of such
fraud under the Final Rule, providers might exit the market or limit
the size or type of transfers sent.\26\
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\26\ A similar analysis regarding benefits would likely apply if
the Bureau expanded the proposed exception to apply in instances in
which a failure to make funds available to the designated recipient
by the disclosed date of availability resulted from a mistake by a
sender other than providing an incorrect account number. Any
optional costs might depend on the nature of any such extension.
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The proposed change regarding requests to resend for certain errors
would also benefit small remittance transfer providers, though the
Bureau expects that the benefits would be small because the
circumstances covered by the proposed change will arise very
infrequently.\27\ In instances in which it is applicable, the proposed
changes would allow a provider to resend a transfer with less
uncertainty about when and how to resend a transfer and possibly to do
so using an estimated exchange rate. The proposed changes also could
mean that in the narrow circumstances that they apply, providers would
not need to provide as many written disclosures as under the Final
Rule. Providers, including small entities, could also benefit from the
alternative on which the Bureau is seeking comment, to adjust the Final
Rule's remedy provisions so that anytime a remittance transfer is
resent to resolve an error, the exchange rate would remain the rate
stated in the original disclosures. This alternative would eliminate
any cost of additional disclosures related to the resend. Unlike the
Final Rule, however, the alternative would not permit a provider to
charge the sender again for third party fees incurred when the transfer
was sent the first time. Furthermore, the alternative could expose
providers to additional exchange rate risk. When funds are resent, a
provider might either gain or lose money related to the change in
market exchange rates between the time of the original transfer and the
time of the resend. The Bureau expects that the
[[Page 77209]]
saved disclosure costs, as well as the costs of third party fees or
related exchange rate risk, would be very small because the covered
circumstances would arise infrequently.
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\27\ The Bureau expects that remittance transfer providers will
generally experience low error rates. Prior to the February Final
Rule, the Credit Union National Association reported a rate of less
than 1% for international wire ``exceptions.'' The proposed changes
would address only resends that occur under certain circumstances
for certain types of errors. Specifically, the proposed change in
the comment would apply in instances in which the error is a failure
to make funds available to a designated recipient by the date of
availability and such an error is due to incorrect or insufficient
information provider by a sender.
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Either the proposed changes regarding certain instances in which
remittance transfer providers resend transactions to correct errors, or
the alternative on which the Bureau seeks comment, could impose a cost
on providers to revise their procedures. Providers might also change
their systems to generate the proposed streamlined disclosures, which
could include the date of transfer, an element that is required on
disclosures only for some remittance transfers. See Sec. Sec.
1005.30(b)(2)(vii) and 1005.36(d). However, the Bureau expects these
costs to be modest, because modifications could be made based on an
existing disclosure form. Also, given the small percentage of
transactions to which the provisions would apply, the Bureau expects
that many small providers might implement the relevant provisions in
the Final Rule or the proposed modifications manually, rather than
through software-based automations. Finally, the Bureau expects that
many small providers (or their software vendors) would incorporate such
modifications into the modifications they would carry out to comply
with the Final Rule.
E. Effective Date
The proposal would temporarily delay the February 7, 2013 effective
date of the Final Rule and extend it to 90 days after this proposal is
finalized. This change would generally benefit small remittance
transfer providers, by delaying the start of any ongoing compliance
costs. The additional time might also enable providers (and their
vendors) to build solutions that cost less than those that might
otherwise have been possible.
F. Certification
Accordingly, the undersigned hereby certifies that if promulgated,
this rule would not have a significant economic impact on a substantial
number of small entities. The Bureau requests comment on the analysis
above and requests any relevant data.
VII. Paperwork Reduction Act
The Bureau's collection of information requirements contained in
this proposal, and identified as such, will be submitted to the Office
of Management and Budget (OMB) for review under section 3507(d) of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA) on or
before publication of this proposal in the Federal Register. Under the
PRA, the Bureau may not conduct or sponsor, and a person is not
required to respond to, an information collection unless the
information collection displays a valid OMB control number. The
proposed collections of information that are subject to the PRA in this
proposal amend portions of 12 CFR Part 1005 (``Regulation E'').
Regulation E currently contains collections of information approved by
OMB. The Bureau's OMB control number for Regulation E is 3170-0014.
A. Overview
The title of these information collections is Electronic Fund
Transfer Act (Regulation E) 12 CFR 1005. The frequency of collection is
on occasion. As described below, the proposed rule would amend portions
of the collections of information currently in Regulation E. Some
portions of these information collections are required to provide
benefits for consumers and are mandatory. However, some portions are
voluntary because certain information collections under this proposal
would simply give remittance transfer providers optional methods of
compliance. Because the Bureau does not collect any information under
the proposed rule, no issue of confidentiality arises. The likely
respondents are remittance transfer providers, including small
businesses. Respondents are required to retain records for 24 months,
but this proposed regulation does not specify the types of records that
must be maintained.
Under the proposed rule, the Bureau generally would account for the
paperwork burden associated with Regulation E for the following
respondents pursuant to its administrative enforcement authority:
insured depository institutions and insured credit unions with more
than $10 billion in total assets, and their depository institution and
credit union affiliates (together, ``the Bureau depository
respondents''), and certain non-depository remittance transfer
providers, such as certain state-licensed money transmitters (``the
Bureau non-depository respondents'').
Using the Bureau's burden estimation methodology, the Bureau
estimates that the total one-time burden for the estimated 5,753
respondents potentially affected by the proposal would be approximately
420,000 hours.\28\ The Bureau estimates that the ongoing burden to
comply with Regulation E would be reduced by approximately 268,000
hours per year by the proposal. The aggregate estimates of total
burdens presented in this analysis are based on estimated costs that
are averages across respondents. The Bureau expects that the amount of
time required to implement the proposed changes for a given remittance
transfer provider may vary based on the size, complexity, and practices
of the respondent.
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\28\ The decrease in respondents relative to the PRA analysis
for the August Final Rule reflects a change in the number of insured
depository institutions and credit unions supervised by the Bureau,
a focus on the Bureau's estimate of the number of insured depository
institutions and credit unions that would qualify as remittance
transfer providers, and a revision by the Bureau of the estimated
number of state-licensed money transmitters that offer remittance
services. The revised estimate of the number of state-licensed money
transmitters that offer remittance services is based on subsequent
analysis of publicly available state registration lists and other
information about the business practices of licensed entities. The
decrease in burden relative to what was previously reported for the
Final Rule from this revision is not included in the change in
burden reported here. However, the revised entity counts are used
for the purpose of calculating other changes in burden that would
arise from the proposal.
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For the 153 Bureau depository respondents, the Bureau estimates for
the purpose of this PRA analysis that the proposal would increase one-
time burden by approximately 11,000 hours and reduce ongoing burden by
approximately 7,300 hours per year. For the estimated 300 Bureau non-
depository respondents, the Bureau estimates that the proposal would
increase one-time burden by 21,900 hours and reduce ongoing burden by
6,300 hours per year.\29\ The Bureau and the Federal Trade Commission
(FTC) generally both have enforcement authority over non-depository
institutions under Regulation E, including state-licensed money
transmitters. The Bureau has allocated to itself half of its estimated
burden to
[[Page 77210]]
Bureau non-depository respondents, which is based on an estimate of the
number of state-licensed money transmitters that are remittance
transfer providers. The FTC is responsible for estimating and reporting
to OMB its total paperwork burden for the institutions for which it has
administrative enforcement authority. It may, but is not required to,
use the Bureau's burden estimation methodology.
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\29\ The Bureau's estimate of non-depository respondents is
based on an estimate of the number of state-licensed money
transmitters that are remittance transfer providers. The Bureau
notes that there may be other entities that are not insured
depository institutions or credit unions and that serve as
providers, such as broker-dealers or money transmission companies
that are not state-licensed. However, the Bureau does not have an
estimate of the number of any such entities. Furthermore, the Bureau
notes that while its analysis in the February Final Rule attributed
burden to the agents of state-licensed money transmitters, in this
case, the Bureau expects that the changes in burden discussed in
this PRA analysis would generally be borne only by money
transmitters themselves, not their agents. In particular, the Bureau
believes that money transmitters will generally gather and prepare
recipient institution fee and foreign tax information centrally,
rather than requiring their agents to do so. Similarly, the Bureau
expects that money transmitters will generally investigate and
respond to errors centrally, rather than asking their agents to take
responsibility for such functions. Comment 30(f)-1 states that a
person is not deemed to be acting as a remittance transfer provider
when it performs activities as an agent on behalf of a remittance
transfer provider.
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B. Analysis of Potential Burden
1. Recipient Institution Fees and Foreign Taxes
As described in parts V and VI above, to take advantage of the new
flexibility that would be provided by the proposal with regard to the
disclosure of recipient institution fees and foreign taxes, remittance
transfer providers might choose to bear some cost of modifying their
systems to calculate disclosures using the new methods permitted by the
proposal, or to describe certain disclosures using the term
``Estimated'' or a substantially similar term. Though the proposal
would not require such modification, for purposes of this analysis, the
Bureau assumes that all remittance transfer providers would decide to
take advantage of the new flexibility permitted due to the related
benefits. The Bureau believes that in many instances providers would
have already modified their systems to use the term ``Estimated'' or a
substantially similar term in other cases, in order to comply with the
Final Rule. The Bureau also expects that many depository institutions
and credit unions will rely on correspondent institutions or other
service providers to provide recipient institution fee and foreign tax
information, as well as standard disclosure forms; as a result, any
development cost associated with the proposal would be spread across
multiple institutions. Furthermore, the Bureau expects that some
providers may not have finished any systems modifications necessary to
comply with the Final Rule, and thus may be able to incorporate any
changes into previously accounted-for work. In the interest of
providing a conservative estimate, however, the Bureau assumes that all
providers would need to modify their systems to calculate disclosures
and to add the term ``Estimated'' or a substantially similar term to a
pre-payment disclosure form and a receipt. The Bureau estimates that
making revisions to systems to calculate disclosures would take 40
hours per provider. Because the forms to be modified are existing
forms, the Bureau estimates that adding the term ``Estimated'' or a
substantially similar term would require eight hours per form per
provider.
On the other hand, the proposal would give remittance transfer
providers options that may reduce the ongoing cost of obtaining and
updating information on taxes and fees. By taking advantage of the new
flexibility permitted by the proposal, the Bureau estimates that
insured depository institutions and credit unions would save, on
average, 48 hours per year and non-depository institutions would save,
on average, 21 hours per year.
The Bureau is particularly seeking comment on whether or not to
adopt an alternative to the term ``Estimated,'' or to require no
disclosure, in instances in which foreign subnational taxes were not
disclosed. The relative cost of any such alternative would depend on
the form of the requirement; if no disclosure were required, the above
calculated burden could be less, but if some alternative form of
disclosure were required for providers that chose to take advantage of
the new flexibility that the proposal would permit, the cost might be
higher.
2. Incorrect or Insufficient Information
As described in parts V and VI above, the Bureau expects that
remittance transfer providers that send money to accounts, in order to
benefit from the proposed changes to the definition of the term error,
may choose to provide senders with notice that if they provide
incorrect account numbers, they could lose the transfer amount, and
providers may also choose to maintain sufficient records to satisfy,
wherever possible, the conditions enumerated in proposed Sec.
1005.33(h) (though no such recordkeeping is required). These enumerated
conditions regard being able to demonstrate facts regarding senders'
responsibility for any account number mistake; the above-referenced
notice; the results of an incorrect account number; and the provider's
effort to recover funds.
Because this will likely involve modifications to existing
communications, the Bureau estimates that providing senders with the
notice described above would require a one-time burden of eight hours
per provider and would not generate any ongoing burden. With regard to
demonstrating facts related to the conditions enumerated in proposed
Sec. 1005.33(h), the Bureau believes that any related record retention
would be a usual and customary practice by providers under the Final
Rule, and that therefore there would be no additional burden associated
with these aspects of the proposal.\30\
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\30\ The Bureau seeks comment on whether the proposed provisions
regarding account number mistakes should be expanded to apply to
other sender mistakes. Any associated PRA burden might depend on the
nature of any such extension.
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In certain circumstances when a remittance transfer provider
resends a remittance transfer to correct an error caused by incorrect
or insufficient information provided by a sender, the proposal would
require that the provider give the sender a single simplified set of
disclosures rather than the pre-payment disclosures and receipt
generally required by the Final Rule. In some cases, the proposal would
permit providers to rely solely on information that is already required
to be included on pre-payment disclosures and receipts; under other
circumstances, the proposal would require the simplified disclosures to
include one additional piece of information that is not required on
existing disclosures: The date that the provider will make the
remittance transfer. Though the Bureau expects that some providers may
avoid these circumstances altogether or incorporate modifications into
those they would carry out to comply with the Final Rule, in the
interest of providing a conservative estimate, the Bureau estimates
that the modified disclosure requirement would require a one-time
change to an existing form that would take each provider eight hours to
make.
The Bureau also estimates that to reflect the proposed changes
regarding certain errors, remittance transfer providers would spend, on
average, one hour, to update written policies and procedures designed
to ensure compliance with respect to the error resolution requirements
applicable to providers, pursuant to Sec. 1005.33(g).
The Bureau expects that the proposed requirement for a simplified
set of disclosures would also reduce providers' ongoing burden, by
eliminating the need to provide both a pre-payment disclosure and a
receipt under covered circumstances. However, because the Bureau
expects that the covered circumstances would arise very infrequently,
the Bureau expects that this burden reduction would be minimal.
Alternatively, the Bureau seeks comment on whether to change the
error resolution procedures such that, among other things, no
additional disclosures would be required when remittance transfers
providers resend transfers in order to correct errors. Under that
alternative scenario, the Bureau expects that a similar analysis would
apply. Providers would need to make small
[[Page 77211]]
systems changes to eliminate required disclosures, as well as update
their error resolution procedures; the burden on providers would be
reduced minimally, due to the need to send fewer disclosures in a very
small number of circumstances.
C. Comments Requested
Comments on this analysis must be received by January 30, 2013.
With regard to this PRA analysis, comments are specifically requested
concerning:
(i) Whether the proposed collections of information are necessary
for the proper performance of the functions of the Bureau, including
whether the information will have practical utility;
(ii) The accuracy of the estimated burden associated with the
proposed collections of information;
(iii) How to enhance the quality, utility, and clarity of the
information to be collected; and
(iv) How to minimize the burden of complying with the proposed
collections of information, including the application of automated
collection techniques or other forms of information technology.
All comments will become a matter of public record.
Comments on the collection of information requirements should be
sent to the Office of Management and Budget (OMB), Attention: Desk
Officer for the Consumer Financial Protection Bureau, Office of
Information and Regulatory Affairs, Washington, DC 20503, or by the
internet to [email protected], with copies to the Bureau at
the Consumer Financial Protection Bureau (Attention: PRA Office), 1700
G Street NW., Washington, DC 20552, or by the internet to [email protected].
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions. New language is shown inside bold arrows, and language that
would be deleted is shown inside bold brackets.
List of Subjects in 12 CFR Part 1005
Banking, Banks, Consumer protection, Credit unions, Electronic fund
transfers, National banks, Remittance transfers, Reporting and
recordkeeping requirements, Savings associations.
Authority and Issuance
For the reasons stated in the preamble, the Bureau proposes to
amend 12 CFR part 1005, as added February 7, 2012 (77 FR 6285), and
amended August 20, 2012 (77 FR 5028) as set forth below:
PART 1005--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 1005 continues to read as
follows:
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1693b. Subpart B is
also issued under 12 U.S.C. 5601.
Subpart B--Requirements for Remittance Transfers
2. Amend Sec. 1005.31 to revise paragraphs (b)(1)(vi) and (d) to
read as follows:
Sec. 1005.31 Disclosures.
* * * * *
(b) Disclosure requirements. * * *
(1) * * *
(vi) [rtrif]Except as set forth in this paragraph,
any[ltrif][lsqbb]Any[rsqbb] fees and taxes imposed on the remittance
transfer by a person other than the provider, in the currency in which
the funds will be received by the designated recipient, using the terms
``Other Fees'' for fees and ``Other Taxes'' for taxes, or substantially
similar terms. [rtrif]With respect to tax disclosures, only taxes
imposed on the remittance transfer by a foreign country's central
government need be disclosed. [ltrif]The exchange rate used to
calculate these fees and taxes is the exchange rate in paragraph
(b)(1)(iv) of this section, including an estimated exchange rate to the
extent permitted by Sec. 1005.32, prior to any rounding of the
exchange rate; and
* * * * *
(d) Estimates. Estimated disclosures may be provided to the extent
permitted by Sec. 1005.32. Estimated disclosures must be described
using the term ``Estimated'' or a substantially similar term in close
proximity to the estimated term or terms. [rtrif]The term ``Estimated''
also must be used if a provider is not disclosing regional, provincial,
state, or other local foreign taxes, as permitted by paragraph
(b)(1)(vi) of this section.[ltrif]
* * * * *
3. Amend Sec. 1005.32 to add paragraphs (b)(3) and (b)(4) to read
as follows:
Sec. 1005.32 Estimates.
* * * * *
(b) Permanent Exceptions. * * *
[rtrif](3) Permanent exception where variables affect taxes imposed
by a person other than the provider. For purposes of determining the
taxes to be disclosed under Sec. 1005.31(b)(1)(vi), if a remittance
transfer provider does not have specific knowledge regarding variables
that affect the amount of taxes imposed by a person other than the
provider, the provider may disclose the highest possible tax that could
be imposed on the remittance transfer with respect to any unknown
variable.
(4) Permanent exception where variables affect recipient
institution fees. (i) For purposes of determining the fees to be
disclosed under Sec. 1005.31(b)(1)(vi), if a remittance transfer
provider does not have specific knowledge regarding variables that
affect the amount of fees imposed by a designated recipient's
institution for receiving a transfer in an account, the provider may
disclose the highest possible recipient institution fees that could be
imposed on the remittance transfer with respect to any unknown
variable, as determined based on either fee schedules made available by
the recipient institution or information ascertained from prior
transfers to the same recipient institution.
(ii) If the provider cannot obtain such fee schedules or does not
have such information, a provider may rely on other reasonable sources
of information, if the provider discloses the highest fees identified
through the relied-upon source.[ltrif]
* * * * *
4. Amend Sec. 1005.33 to revise paragraphs (a)(2)(iv), (c)(2)
introductory text, (c)(2)(ii)(A)(2) and to add paragraphs
(a)(1)(iv)(D), (c)(3) and (h) to read as follows:
Sec. 1005.33 Procedures for resolving errors.
* * * * *
(a) Definition of Error. (1) Types of transfers or inquiries
covered. * * *
(iv) * * *
[rtrif](D) The sender having given the remittance transfer provider
an incorrect account number, provided that the remittance transfer
provider meets the conditions set forth in paragraph (h) of this
section; or [ltrif]
* * * * *
(2) Types of transfers or inquiries not covered. * * *
(iv) A change in the amount or type of currency received by the
designated recipient from the amount or type of currency stated in the
disclosure provided to the sender under Sec. 1005.31(b)(2) or (3)
[rtrif]because[ltrif][lsqbb]if[rsqbb] the remittance transfer provider
[rtrif]did not disclose foreign taxes other than those imposed by a
country's central government, or[ltrif] relied on information provided
by the sender as permitted under Sec. 1005.31 in making such
disclosure.
* * * * *
(c) * * *
(2) Remedies. [lsqbb]If[rsqbb] [rtrif]Except as provided in
paragraph (c)(3) of this section, if[ltrif] * * *
* * * * *
[[Page 77212]]
(ii) * * *
(A) * * *
(2) Making available to the designated recipient the amount
appropriate to resolve the error. Such amount must be made available to
the designated recipient without additional cost to the sender or to
the designated recipient unless the sender provided incorrect or
insufficient information to the remittance transfer provider in
connection with the remittance transfer, in which case, third party
fees may be imposed for resending the [lsqbb]remittance transfer[rsqbb]
[rtrif]funds[ltrif] with the corrected or additional information; and
* * * * *
[rtrif](3) Disclosures where refund not previously chosen. If an
error under paragraph (a)(1)(iv) of this section occurred because the
sender provided incorrect or insufficient information, and if the
sender has not previously designated a refund remedy pursuant to
paragraph (c)(2)(ii)(A)(1) of this section, then:
(i) If the remittance transfer provider does not make direct
contact with the sender when providing the report required by paragraph
(c)(1) of this section, the provider shall provide, orally or in
writing, as applicable, the following disclosures:
(A) The disclosures required by Sec. 1005.31(b)(2)(i) through
(iii) for remittance transfers and the date the remittance transfer
provider will complete the resend, using the term ``Transfer Date'' or
a substantially similar term. These disclosures must be accurate when
the resend is made except that the disclosures may contain estimates to
the extent permitted by Sec. 1005.32(a) or (b) for remittance
transfers; and
(B) If the transfer is scheduled three or more business days before
the date of transfer, a statement about the rights of the sender
regarding cancellation reflecting the requirements of Sec. 1005.36(c),
the requirements of which shall apply to the resend; or
(ii) If the remittance transfer provider makes direct contact with
the sender at the same time or after providing the report required by
paragraph (c)(1) of this section, the provider shall provide, orally or
in writing, as applicable, the disclosures required by Sec.
1005.31(b)(2)(i) through (iii) for remittance transfers. These
disclosures must be accurate when the resend is made except that the
disclosures may contain estimates to the extent permitted by Sec.
1005.32(a), (b)(1), (b)(3) or (b)(4) for remittance transfers.[ltrif]
* * * * *
[rtrif](h) Incorrect account number provided by the sender. No
error has occurred under paragraph (a)(1)(iv) of this section for
failure to make funds available to a designated recipient by the date
of availability stated in the disclosure provided pursuant to Sec.
1005.31(b)(2) or (3) if the remittance transfer provider can
demonstrate that:
(1) The sender provided an incorrect account number to the
remittance transfer provider in connection with the remittance
transfer;
(2) The sender had notice that, in the event the sender provided an
incorrect account number, that the sender could lose the transfer
amount;
(3) The incorrect account number resulted in the deposit of the
remittance transfer into a customer's account at the recipient
institution other than the designated recipient's account; and
(4) The provider promptly used reasonable efforts to recover the
amount that was to be received by the designated recipient.[ltrif]
* * * * *
5. Amend Sec. 1005.36 to revise paragraph (b)(3) to read as
follows:
Sec. 1005.36 Transfers scheduled before the date of transfer.
* * * * *
(b) * * *
(3) Disclosures provided pursuant to paragraph (a)(1)(ii) or
(a)(2)(ii) of this section must be accurate as of when the remittance
transfer to which it pertains is made, except to the extent estimates
are permitted by Sec. 1005.32(a)[lsqbb] or[rsqbb] [rtrif],[ltrif]
(b)(1)[rtrif], (b)(3) or (b)(4)[ltrif].
6. In Supplement I to part 1005:
a. Under Section 1005.31 Disclosures,
i. Under subheading 31(b)(1) Pre-Payment Disclosures, revise
paragraph 1.ii and add paragraphs 1.iii through v.
ii. Under subheading 31(b)(1)(vi) Fees and Taxes imposed by a
Person Other than the Provider, revise paragraph 2 and add paragraphs 3
and 4.
iii. Under subheading 31(d) Estimates, revise paragraph 1.
b. Under Section 1005.32 Estimates,
i. Revise comment 32-1.
ii. Under subheading 32(b) Permanent Exceptions, add new subheading
32(b)(3) Permanent Exception Where Variables Affect Foreign Taxes and
add new comment 32(b)(3)-1.
iii. Under subheading 32(b) Permanent Exceptions, add new
subheading 32(b)(4) Permanent Exception Where Variables Affect
Recipient Institution Fees and add new comments 32(b)(4)-1 and 32
(b)(4)-2.
iv. Under subheading 32(d) Bases for Estimates for Transfers
Scheduled Before the Date of Transfer, revise the second sentence of
comment 32(d)-1 and add a new sentence immediately following it.
c. Under Section 1005.33, Procedures for Resolving Errors,
i. Under subheading 33(a) Definition of Error, revise the second
sentence of comment 33(a)-3.ii and comment 33(a)-4, redesignate
comments 33(a)-7 and 33(a)-8 as comments 33(a)-8 and 33(a)-9
respectively, revise newly redesignated comment 33(a)-9, and add new
comment 33(a)-7.
ii. Under subheading 33(c) Time Limits and Extent of Investigation,
revise comment 33(c)-2 and add new comment 33(c)-11.
iii. Add new subheading 33(h) Incorrect Account Number Supplied and
add paragraphs 1 and 2 under the subheading.
d. Under Section 1005.36, under subheading 36(b) Accuracy, revise
the second sentence of comment 36(b)-3.
The additions and revisions read as follows:
Supplement I to Part 1005--Official Interpretations
* * * * *
Section 1005.31--Disclosures
* * * * *
31(b) Disclosure Requirements
* * * * *
31(b)(1) Pre-Payment Disclosures.
1. Fees and taxes. * * *
ii. The fees and taxes required to be disclosed by Sec.
1005.31(b)(1)(ii) include all fees and taxes imposed on the
remittance transfer by the provider. For example, a provider must
disclose a service fee and any State taxes imposed on the remittance
transfer. In contrast, the fees and taxes required to be disclosed
by Sec. 1005.31(b)(1)(vi) include fees and taxes imposed on the
remittance transfer by a person other than the provider.
[rtrif]iii.[ltrif] Fees and taxes imposed on the remittance
transfer include only those fees and taxes that are charged to the
sender or designated recipient and are specifically related to the
remittance transfer. For example, a provider must disclose fees
imposed on a remittance transfer by the [lsqbb]receiving[rsqbb]
[rtrif]recipient's[ltrif] institution or agent at pick-up for
receiving the transfer, fees imposed on a remittance transfer by
intermediary institutions in connection with an international wire
transfer, and taxes imposed on a remittance transfer by a foreign
[rtrif]country's central[ltrif] government. However, a provider need
not disclose, for example, overdraft fees that are imposed by a
recipient's bank or funds that are garnished from the proceeds of a
remittance transfer to satisfy an unrelated debt, because these
charges are not specifically related to the remittance transfer.
[rtrif]Account fees are also not specifically related to a
remittance transfer if such fees are merely assessed based on
general account activity and not for receiving transfers. Where an
incoming remittance transfer results in a balance increase that
triggers a monthly maintenance
[[Page 77213]]
fee, that fee is not specifically related to a remittance
transfer.[ltrif] Similarly, fees that banks charge one another for
handling a remittance transfer or other fees that do not affect the
total amount of the transaction or the amount that will be received
by the designated recipient are not charged to the sender or
designated recipient. For example, an interchange fee that is
charged to a provider when a sender uses a credit or debit card to
pay for a remittance transfer need not be disclosed.
[rtrif]iv. A fee that specifically relates to a remittance
transfer may be structured on a flat per-transaction basis, or may
be conditioned on other factors (such as account status or the
quantity of remittance transfers received) in addition to the
remittance transfer itself. For example, where an institution
charges an incoming wire fee on most customers' accounts, but not on
preferred accounts, such a fee is nonetheless specifically related
to a remittance transfer. Similarly, if the institution assesses a
fee for every transfer beyond the fifth received each month, such a
fee would be specifically related to the remittance transfer
regardless of how many remittance transfers preceded it that month.
In either case, the fee is subject to disclosure under Sec.
1005.31(b)(1)(vi); see comment 31(b)(1)(vi)-4 regarding how to make
such disclosures.
v.[ltrif] The terms used to describe the fees and taxes imposed
on the remittance transfer by the provider in Sec.
1005.31(b)(1)(ii) and imposed on the remittance transfer by a person
other than the provider in Sec. 1005.31(b)(1)(vi) must
differentiate between such fees and taxes. For example, the terms
used to describe fees disclosed under Sec. 1005.31(b)(1)(ii) and
(vi) may not both be described solely as ``Fees.''
* * * * *
31(b)(1)(vi) Fees and Taxes Imposed by a Person Other than the
Provider.
* * * * *
2. Determining taxes. The amount of taxes imposed by a person
other than the provider may depend on the tax status of the sender
or recipient, the type of accounts or financial institutions
involved in the transfer, or other variables. For example, the
amount of tax may depend on whether the receiver is a resident of
the country in which the funds are received or the type of account
to which the funds are delivered. If a provider does not have
specific knowledge regarding variables that affect the amount of
taxes imposed by a person other than the provider for purposes of
determining these taxes, the provider may rely on a sender's
representations regarding these variables. [lsqbb]If a sender does
not know the information relating to the variables that affect the
amount of fees or taxes imposed by a person other than the provider,
the provider may disclose the highest possible tax that could be
imposed for the remittance transfer with respect to any unknown
variable.[rsqbb]
[rtrif]3. Taxes imposed by a country's central government. A
provider need only disclose foreign taxes assessed on the transfer
by a country's central government. Regional, provincial, state, or
other local foreign taxes need not be disclosed, although a provider
may choose to disclose them.
4. Determining recipient institution fees. In some cases, where
a remittance transfer is sent to a designated recipient's account at
a financial institution, the institution imposes a fee on the
remittance transfer pursuant to an agreement with the recipient. The
amount of the fee imposed by the institution may vary based on
whether the designated recipient holds a preferred status account
with a financial institution, the quantity of transfers received, or
other variables. If a remittance transfer provider does not have
specific knowledge regarding variables that affect the amount of
fees imposed by the recipient's institution for receiving a transfer
in an account, the provider may rely on a sender's representations
regarding these variables. [ltrif]
* * * * *
31(d) Estimates
1. Terms. A remittance transfer provider may provide estimates
of the amounts required by Sec. 1005.31(b), to the extent permitted
by Sec. 1005.32. [rtrif]A provider also may choose not to disclose
regional, provincial, state, or other local foreign taxes under
Sec. 1005.31(b)(1)(vi). This may also result in disclosures that do
not match the amount actually received by the designated recipient.
In both cases, the relevant disclosures[ltrif] [lsqbb]An
estimate[rsqbb] must be described using the term ``Estimated'' or a
substantially similar term in close proximity to the term or terms
described. For example, a remittance transfer provider could
describe an estimated disclosure as ``Estimated Transfer Amount,''
``Other Estimated Fees and Taxes,'' or ``Total to Recipient
(Est.).'' [rtrif] However, if the provider is relying on the
sender's representations or has specific knowledge regarding
variables that affect the amount of fees disclosed under Sec.
1005.31(b)(1)(vi), and is not otherwise providing estimated
disclosures, Sec. 1005.31(d) does not apply. Section 1005.31(d)
also does not apply to foreign tax disclosures if the provider
discloses all applicable taxes (including applicable regional,
provincial, state, or other local foreign taxes), if the provider is
relying on the sender's representations or has specific knowledge
regarding variables that affect the amount of foreign taxes imposed
by a country's central government, and if the provider is not
otherwise providing estimated disclosures.[ltrif]
* * * * *
Section 1005.32--Estimates
1. Disclosures where estimates can be used. Section 1005.32(a)[
and][rtrif],[ltrif] (b)(1)[rtrif], (b)(3) and (b)(4)[ltrif] permit
estimates to be used in certain circumstances for disclosures
described in Sec. Sec. 1005.31(b)(1) through (b)(3) and
1005.36(a)(1) and (2). To the extent permitted in Sec. 1005.32(a)[
and][rtrif],[ltrif] (b)(1)[rtrif], (b)(3) and (b)(4)[ltrif], * * *
* * * * *
32(b) Permanent Exceptions
* * * * *
[rtrif]32(b)(3) Permanent Exception Where Variables Affect Taxes
Imposed by a Person Other Than the Provider
1. Application of exception. The amount of taxes imposed by a
person other than the provider may depend on certain variables. See
comment 32(b)(1)(vi)-2. Under Sec. 1005.32(b)(3), a provider may
disclose the highest possible tax that could be imposed on the
remittance transfer with respect to any unknown variable. For
example, if a tax may vary based upon whether a recipient's
institution is grandfathered under existing law, or whether the
recipient has reached a transaction threshold above which taxes are
assessed, the provider may simply assume that a tax applies without
having to ask the sender first. In such a case, the provider should
disclose the highest possible tax that could be imposed. If the
provider expects that variations may result from differing
interpretations of law or regulation by the paying agent or
recipient institution, the provider may assume that the highest
possible tax that could be imposed applies.
32(b)(4) Permanent Exception Where Variables Affect Recipient
Institution Fees
1. Application of exception. The amount of fees imposed by a
designated recipient's institution for receiving a transfer in an
account a person other than the provider may depend on certain
variables. See comment 32(b)(1)(vi)-4. Under Sec. 1005.32(b)(4)(i),
a provider may disclose the highest possible fees that could be
imposed on the remittance transfer with respect to any unknown
variable based on, among other things, fee schedules made available
by the recipient institution. For example, if a provider relies on
an institution's fee schedules, and the institution offers three
accounts with different incoming wire fees, the provider should take
the highest fee and use that as the basis for disclosure.
2. Reasonable sources of information. Reasonable sources of
information include: fee schedules published by competitor
institutions; surveys of financial institution fees; or information
provided by the recipient institution's regulator or central
bank.[ltrif]
* * * * *
32(d) Bases for Estimates for Transfers Scheduled Before the Date
of Transfer
1. In general. * * *. If, for the same-day remittance transfer,
the provider could utilize either of the [other two] exceptions
permitting the provision of estimates in Sec. 1005.32(a) or (b)(1),
the provider may provide estimates based on a methodology permitted
under Sec. 1005.32(c).[rtrif] The provider could also provide
estimates in accordance with Sec. 1005.32(b)(3) or (b)(4). [ltrif]
* * *
Section 1005.33--Procedures for Resolving Errors
33(a) Definition of Error
* * * * *
3. Incorrect amount of currency received--examples. * * *
* * * * *
ii. * * *. The remittance transfer provider provides the sender
a receipt stating an amount of currency that will be received by
[[Page 77214]]
the designated recipient, which does not reflect additional foreign
taxes that will be imposed [in][rtrif]by[ltrif] Colombia[rtrif]'s
central government[ltrif] on the transfer. * * *
* * * * *
4. Incorrect amount of currency received-extraordinary
circumstances. Under [rtrif]Sec. 1005.33(a)(1)(iii)(B), a
remittance transfer provider's failure to make available to a
designated recipient the amount of currency stated in the disclosure
provided pursuant to Sec. 1005.31(b)(2) or (3) for the remittance
transfer[ltrif] [lsqbb]Sec. 1005.33(a)(1)(iv)(B), a remittance
transfer provider's failure to deliver or transmit a remittance
transfer by the disclosed date of availability[rsqbb] is not an
error if such failure was caused by extraordinary circumstances
outside the remittance transfer provider's control that could not
have been reasonably anticipated. Examples of extraordinary
circumstances outside the remittance transfer provider's control
that could not have been reasonably anticipated under [rtrif]Sec.
1005.33(a)(1)(iii)(B)[ltrif] [lsqbb]Sec.
1005.33(a)(1)(iv)(B)[rsqbb] include circumstances such as war or
civil unrest, natural disaster, garnishment or attachment of some of
the funds after the transfer is sent, and government actions or
restrictions that could not have been reasonably anticipated by the
remittance transfer provider, such as the imposition of foreign
currency controls or foreign taxes unknown at the time the receipt
or combined disclosure is provided under Sec. 1005.31(b)(2) or (3).
* * * * *
7. [rtrif]Sender Account Number Error. The exception in Sec.
1005.33(a)(1)(iv)(D) applies where a sender gives the remittance
transfer provider an incorrect account number that results in the
deposit of the remittance transfer into a customer's account at the
recipient institution other than the designated recipient's account.
This exception does not apply where the failure to make funds
available is the result of a mistake by a provider or a third party
or due to incorrect or insufficient information other than an
incorrect account number.[ltrif]
[rtrif]8.[ltrif] [lsqbb]7[rsqbb]Recipient-requested changes. * *
*
[rtrif]9.[ltrif] [lsqbb]8[rsqbb]Change from disclosure made in
reliance on sender information [rtrif]or because only foreign taxes
imposed by a country's central government disclosed[ltrif]. Under
[rtrif]Sec. 1005.31(b)(1)(vi), providers need not disclose
regional, provincial, state, or other local foreign taxes. Further,
under[ltrif] the commentary accompanying Sec. 1005.31, the
remittance transfer provider may rely on the sender's
representations in making certain disclosures. See, e.g. comments
31(b)(1)(iv)-1 [lsqbb],[rsqbb] [rtrif]and[ltrif] 31(b)(1)(vi)-1
[lsqbb], and 31(b)(1)(vi)-2[rsqbb] [rtrif] through 31(b)(1)(vi)-4.
Any discrepancy between the amount disclosed and the actual amount
received resulting from the provider's reliance upon these
provisions does not constitute an error under Sec.
1005.33(a)(2)(iv).[ltrif] For example, suppose a sender requests
U.S. dollars to be deposited into an account of the designated
recipient and represents that the account is U.S. dollar-
denominated. If the designated recipient's account is actually
denominated in local currency and the recipient's account-holding
institution must convert the remittance transfer into local currency
in order to deposit the funds and complete the transfer, the change
in currency does not constitute an error [lsqbb]pursuant to[rsqbb]
[rtrif]as set forth in[ltrif] Sec. 1005.33(a)(2)(iv). Similarly, if
the remittance transfer provider relies on the sender's
representations regarding variables that affect the amount of
[rtrif]recipient institution fees or[ltrif] taxes imposed by a
person other than the provider for purposes of determining
[rtrif]fees or[ltrif] [lsqbb]these[rsqbb] taxes[rtrif] required to
be disclosed under Sec. 1005.31(b)(1)(vi), or does not disclose
regional, provincial, state, or other local foreign taxes, as
permitted by Sec. 1005.31(b)(1)(vi), [ltrif]the change in the
amount of currency the designated recipient actually receives due to
the [rtrif]recipient institution fees or foreign[ltrif] taxes
actually imposed does not constitute an error, [lsqbb]pursuant
to[rsqbb] [rtrif]as set forth in[ltrif] Sec. 1005.33(a)(2)(iv).
* * * * *
33(c) Time Limits and Extent of Investigation
* * * * *
2. Incorrect or insufficient information provided for transfer.
Under Sec. 1005.33(c)(2)(ii)(A)(2), if a remittance transfer
provider's failure to make funds in connection with a remittance
transfer available to a designated recipient by the disclosed date
of availability occurred because the sender provided incorrect or
insufficient information in connection with the transfer, such as by
erroneously identifying the designated recipient[rtrif]'s
address[ltrif] [lsqbb]or the recipient's account number[rsqbb] or by
providing insufficient information to enable the entity distributing
the funds to identify the correct designated recipient, the sender
may choose to have the provider make funds available to the
designated recipient and third party fees may be imposed for
resending the remittance transfer with the corrected or additional
information. The remittance transfer provider may not require the
sender to provide the principal transfer amount again. [rtrif]When
resending funds, the entire transfer amount is to be sent again
except that Sec. 1005.33(c)(2)(ii)(A)(2) permits a provider to
deduct those third party fees that were actually incurred as part of
the first unsuccessful remittance transfer attempt. While a request
to resend is not a request for a remittance transfer, Sec.
1005.33(c)(3) requires providers to provide certain
disclosures[ltrif]. [lsqbb]Third parties fees that were not incurred
during the first unsuccessful remittance transfer attempt may not be
imposed again for resending the remittance transfer. A request to
resend is a request for a remittance transfer. Therefore, a provider
must provide the disclosures required by Sec. 1005.31 for a resend
of a remittance transfer, and[rsqbb] [rtrif]To the extent currency
must be exchanged when resending funds, [ltrif] the provider must
use the exchange rate it is using for such transfers on the date of
the resend [lsqbb]if funds were not already exchanged in the first
unsuccessful remittance transfer attempt[rsqbb]. A sender providing
incorrect or insufficient information does not include a provider's
miscommunication of information necessary for the designated
recipient to pick-up the transfer [rtrif]nor does it include a
sender providing an incorrect account number when the provider has
satisfied the requirements of Sec. 1005.33(h). See Sec.
1005.33(a)(1)(iv)(D)[ltrif]. For example, a sender is not considered
to have provided incorrect or insufficient information if the
provider discloses the incorrect location where the transfer may be
picked up or gives the wrong confirmation number/code for the
transfer. The following examples illustrate these concepts.
* * * * *
[rtrif]11. Procedure for resending a remittance transfer. The
disclosures in Sec. 1005.33(c)(3) need not be provided either if
the sender has elected a refund remedy or if the remittance transfer
provider's default remedy is a refund and the sender has not
selected a remedy prior to when the provider is providing the Sec.
1005.33(c)(1) report. To the extent that the resend is not properly
transmitted, the initial error has not been resolved and the
provider's duty to resolve it is not fully satisfied.
i. For purposes of determining the date of transfer for
disclosures made in accordance with Sec. 1005.33(c)(3)(i), if the
remittance transfer provider is unable to speak to or otherwise make
direct contact with the sender, the provider may use the same date
on which it would provide a default remedy (i.e. one business day
after 10 days after the provider has sent the report provided under
Sec. 1005.33(c)(1)). See comment 33(c)-4.
ii. If the remittance transfer provider makes direct contact
with the sender at the same time or after providing the report
required by Sec. 1005.33(c)(1), and if the time to cancel a resend
disclosed pursuant to Sec. 1005.33(c)(3)(i)(B) has not passed,
Sec. 1005.33(c)(2) requires the provider to resend the funds the
next business day or as soon as reasonably practicable thereafter if
the sender elects a resend remedy. For such a resend, the provider
must provide the disclosures required by Sec. 1005.33(c)(3)(ii) to
use the exchange rate it is using for such transfers on the date of
resend to the extent that currency must be exchanged when resending
funds. When providing disclosures pursuant to Sec.
1005.33(c)(3)(ii), the provider need not allow the sender to cancel
the resend.[ltrif]
* * * * *
[rtrif]33(h) Incorrect Account Number Supplied.
1. Reasonable efforts. Section 1005.33(h)(4) requires a
remittance transfer provider to use reasonable efforts to recover
the amount that was to be received by the designated recipient.
Whether a provider has used reasonable efforts does not depend on
whether the provider is ultimately successful in recovering the
amount that was to be received by the designated recipient. The
following are examples of how a provider might use reasonable
efforts:
i. The remittance transfer provider promptly calls or otherwise
contacts the recipient's institution, either directly or indirectly
through any correspondent(s) or other intermediaries or service
providers used for the particular transfer, to request that the
amount that was to be received by the designated recipient be
returned, and if required by law or contract, by requesting
[[Page 77215]]
that the recipient institution obtain a debit authorization from the
holder of the incorrectly credited accountholder.
ii. The remittance transfer provider promptly uses a messaging
service through a funds transfer system to contact the recipient's
institution, either directly or indirectly through any
correspondent(s) or other intermediaries or service providers used
for the particular transfer, to request that the amount that was to
be received by the designated recipient be returned, in accordance
with the messaging service's rules and protocol, and if required by
law or contract, by requesting that the recipient institution obtain
a debit authorization from the holder of the incorrectly credited
account.
iii. In addition to using the methods outlined above, to the
extent that a correspondent institution, other service providers to
the recipient institution, or the recipient institution requests
documentation or other supporting information, the remittance
transfer provider promptly provides such documentation or other
supporting information to the extent available.
2. Promptness of Reasonable Efforts. Section 1005.33(h)(4)
requires that a remittance transfer provider act promptly in using
reasonable efforts to recover the amount that was to be received by
the designated recipient. While promptness may depend on the
circumstances, generally a remittance transfer provider acts
promptly when it does not delay in seeking recovery of the mis-
deposited funds. For example, if the sender informs the provider of
the error before the date of availability disclosed pursuant to
Sec. 1005.31(b)(2)(ii), the provider should act to contact the
recipient's institution before the date of availability, as doing so
may prevent the funds from being mis-deposited.[ltrif]
* * * * *
36(b) Accuracy
* * * * *
3. Receipts. * * *. However, the remittance transfer provider
may continue to disclose estimates to the extent permitted by Sec.
1005.32(a)[ or][rtrif],[ltrif] (b)(1)[rtrif], (b)(3) or
(b)(4)[ltrif]. * * *
* * * * *
Dated: December 21, 2012.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2012-31170 Filed 12-27-12; 11:15 am]
BILLING CODE 4810-AM-P